Margaret Beckett: I have had regular discussions with my German colleagues during their presidency about many issues, including EU institutional reform. So, too, has my right hon. Friend the Prime Minister, who met Chancellor Merkel most recently on 24 April. At present, there remains no consensus among EU partners on this issue, but we will discuss it at the European Council in June.

Gisela Stuart: The Foreign Secretary has referred to the process of finding where consensus lies. In this House, we have found it extremely difficult to find out what the British Government's position is, never mind determining where consensus lies. Will she at least acknowledge that one of the biggest difficulties for the British Government is that there is a huge division between the needs of the countries in the eurozone, which will require greater political integration from such a document, and the needs of those that are outside it?

Margaret Beckett: I believe that we have been quite clear about this. The Minister for Europe has set out on a number of occasions the principles on which we base our approach to the issue. Also, my right hon. Friend the Prime Minister and the Dutch Prime Minister recently made it clear that we would certainly be looking not for a constitutional treaty but for an amending treaty that did not contain the characteristics of a constitution, but which might tidy up the rules of the European Union to make it operate more effectively. With regard to whether there is a difference of approach for those countries that are members of the eurozone, I know that my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) takes a great interest in these matters, but, for my own part, I would be reluctant to say anything that encouraged the idea that there should be some kind of two-speed Europe.

Quentin Davies: Is it not the case that the proposals for treaty change that have been mooted are either so obviously in the interests of democracy and transparency, such as an increased role for national Parliaments, or so obviously in the national interest, such as reducing the numbers in the Commission while we keep a permanent seat, or reducing the current bias against us in the qualified majority voting system, that it is difficult to see how anyone could rationally want to oppose them? Furthermore, how could we possibly conceive of having a referendum on what are essentially procedural and administrative matters, or even on matters relating to personnel management and job description? If we are going to have a referendum on that kind of thing, surely we should simply put all the amendments in the Finance Bill this afternoon— [ Interruption. ]

Margaret Beckett: As the hon. Gentleman and the House will appreciate, I am not intending to do so, as I have pointed out already that the opinion of member states has moved little hitherto. I am certainly not going to conduct, in public, negotiations that have yet to commence seriously. We have made it clear that there should not be anything that has the characteristics of a constitution. There would be merit, however, in having an amending treaty, which could tidy up some of the ways in which the European Union works— [Interruption.] Well, for example, we must consider the issue of the number of members of the Commission. There is also merit in considering whether the practical working and efficiency of the European Union can be improved in a way that would be in the interests of this country. We certainly have not the slightest intention of consenting to decisions that would not be in the interests of this country.

Kim Howells: I am sure that the House will join me in expressing condolences to the family of Rifleman Paul Donnachie of 2nd Battalion The Rifles, who was tragically killed in Iraq last Sunday. Rifleman Donnachie was killed by small arms fire during a routine patrol in Basra city while he and other members of his patrol were escorting a police training team.
	United Nations agencies estimate that there are some 1.9 million Iraqis displaced internally, and up to 2 million refugees in neighbouring states. Many of those now in neighbouring states left Iraq before 2003, and there are no accurate figures for how many have joined them since then. However, the United Nations High Commissioner for Refugees estimates that currently 10,000 people are leaving their homes every week, many of them crossing into neighbouring countries.

Kim Howells: I certainly think that, in the case of my hon. Friend's constituent, that is an unreasonable demand. However, I am sure that he knows that there have been UNCC-approved compensation awards totalling $52 billion to 1.5 million claimants worldwide, and so far $21.8 billion has been paid out. That money comes as 5 per cent. of Iraqi oil revenues. The figures for Britain are that 5,000 United Kingdom claimants have received awards totalling $428 million. Those are large sums, but I take on board my hon. Friend's point and, as I said, where there are difficulties we must look carefully at the demands and where possible ask that the most difficult payments be written off.

Emily Thornberry: Does my right hon. Friend agree that another very important Islamic country is Bangladesh? In light of recent developments such as the warrant for the arrest of one of the major political leaders and the house arrest of another, the putting off of elections and the increasing dominance of the military, will she look again at Britain's support for the interim Government?

David Winnick: Is it not interesting that on Sunday, hundreds of thousands of people demonstrated in Turkey in defence of the republic and of freedom, and against the nightmare of a religious-run state? Should we not congratulate all those who demonstrated and all their supporters on the fact that Turkish freedom and democracy will not be undermined?

William Hague: Events since the last Foreign Office questions have underlined that our most difficult relationship in the Islamic world is with Iran. Should we not do everything that we can to make it clear that Iran can have a normal relationship with the western world if it suspends nuclear enrichment and some other activities, but that if it does not, the United Kingdom will ask other EU countries to join the United States in taking progressively more serious economic and financial action against Iran—on access to the banking system, export credits and investment in oil and gas fields—so that the maximum peaceful pressure can be applied against nuclear proliferation, before it is too late?

Margaret Beckett: I agree with every word that the right hon. Gentleman has just uttered. He is right to say that it is very important not only that we maintain pressure on Iran to realise that there is a price to be paid for continuing on her present route, but that we do so in concert with our partners. He may be aware that at the last meeting of the General Affairs Council, it was agreed that the European Union will indeed fully implement, and go slightly further than is demanded by, the previous UN sanctions resolution. We shall continue to urge our colleagues to maintain that firmness.

Kim Howells: I can certainly give my hon. Friend that assurance. India is an extremely important country for the UK and we will do everything we can to continue with the excellent consular services that are provided. It is a complex country and, as my hon. Friend knows, there is considerable devolution to the states that make up India which has, on occasion, resulted in great difficulties in some consular cases, including the one that he raises.

Margaret Beckett: My hon. Friend is entirely right, and the country that he uses as an example—Bangladesh—is an area where substantial movement of people is causing security difficulties. However, I advise him and the whole House that a range of different threats have much the same effect. For example, there is great concern about the implications that difficulties with the flow of the river Nile would have, both in Egypt and all along its course, and about the pressures caused by the possible migration of millions of people. My hon. Friend is therefore right to identify such challenges. It is very important that the countries of the world work together to adapt to the changes that are already inevitable and to head off those that are not, as they might be even more damaging.

Margaret Beckett: My right hon. Friend is referring to the interim report of the Winograd committee, which is, of course, a matter for the Israeli Government. Of course I recognise that a series of international resolutions have made various calls on different participants in the middle east. The Government are determined to do everything that we can to support the peace process and move it forward, as in the end that could provide the answers to many of the questions that my right hon. Friend has raised.

Geoffrey Clifton-Brown: Will the Foreign Secretary utterly condemn those who have been holding the BBC correspondent Alan Johnston for the past 50 days? Will she join me in sending a message of sympathy to his family, colleagues and friends at this very difficult time? She will know that the whole House will support her in any effort that she makes to secure his release, but can she give us any additional information this afternoon, for example about who might be holding Mr. Johnston? What discussions has our high commissioner in Jerusalem had with President Abbas about this matter?

Mr. Speaker: Order. Mr. Wishart, you are out of order. In no circumstances, should you keep shouting at a Minister.

Andrew Selous: If she will make a statement on plans to hold a referendum on the EU Constitution.

Geoff Hoon: The Government have been quite consistent on this issue. We made it clear that, because of the constitutional nature of the constitutional treaty, it would require a referendum. Again, however, the hon. Gentleman should check with his own Front Bench Members precisely what the Government's policy should be. We have been asking them to set out their position, but unfortunately, the right hon. Member for Richmond, Yorks— [Interruption.]

Kim Howells: Our relationship with Iran is presently under review.

Mr. Speaker: I call Mr. Swayne.

Desmond Swayne: I would welcome another go, Mr. Speaker.

Mr. Speaker: Mr. Jenkins.

Patricia Hewitt: The hon. Gentleman asked a series of questions; let me deal with them in turn. He asked about who exactly accessed the site after the first breach. As I indicated, our security investigators have established that access was made from 21 different addresses, the great majority of which belonged to postgraduate deaneries. I am confident, from that investigation, that no members of the public or other commercial organisations accessed the site. Those investigations are continuing, and as more information is established appropriate action will be taken.
	The hon. Gentleman referred to shortlisters having access to applications. It was part of the system designed at the request of the postgraduate deaneries that those assessing applications should be able to access the full range of applications because in some cases multiple assessments were being made.
	On the leak, we have still not been able to establish how "Channel 4 News" came to be told of the existence of these unprotected website pages. However, since the address of the website page for each of the postgraduate deans included a randomly allocated number, it seems highly unlikely that it was by accident. That is why my noble Friend Lord Hunt made the statement that he did on the morning following this outrageous security leak.
	The hon. Gentleman referred to the electronic patient record system. That is a completely separate system established under completely different security and governance arrangements and with a very well developed security compact with patients and the public. It is currently being trialled in various parts of the country, and so far patient response has been extremely good.
	The hon. Gentleman referred to junior doctor candidates changing their preference for applications. It is perfectly true that in a relatively small number of cases people were told inaccurately, or rather were told that there were no vacancies or that there were question marks about their eligibility. That did not come from the MTAS site but was a matter for the deaneries. It was not a fault in the MTAS site, nor did it have anything to do with security breaches; it was a matter for the deaneries, and it is being sorted out where necessary between the individual postgraduate deaneries and individual applicants.
	Turning to the matter of the interview, more than 40,000 interviews were arranged initially as part of round 1, and that part—now round 1A—has been completed. As I said, more than 15,000 new interviews are being made available in round 1B. Some of those appointments were sent to junior doctor applicants before the security breach and therefore the suspension of the site; others, of course, have not been confirmed because of the site's suspension. However, if the hon. Gentleman looks, for instance, at the London deaneries website, he will see that applicants have been informed through that site that interviews are planned to start on 8 May and that candidates will be contacted either through MTAS, when that is restored, or through other administrative arrangements if necessary.
	I can confirm to the House that, as I said last week, we are working with postgraduate deaneries and with the service to create new training posts that will help to meet the aspirations of junior doctors but will also meet the needs of the service. We will confirm the number and the specific specialties, where they will be available, as quickly as we can.

Kevin Barron: Can my right hon. Friend confirm that the leaks that took place on the site last week are nothing at all to do with the electronic patient records that run inside the national health service, and that the words of the Opposition Front-Bench spokesmen are nothing more than irresponsible scaremongering from backwoodsmen?

Patricia Hewitt: I entirely agree with the hon. Member for North Norfolk (Norman Lamb): it was a serious, deplorable breach of security, as I have already said. It could have had far more serious consequences.
	The hon. Gentleman referred to those—one or more individuals—whom we know accessed personal information without authority. It is a matter for their employers—and possibly others—to establish whether the personal information that they accessed was made available to other people.
	The hon. Gentleman asked about the 21 addresses and establishing precisely who accessed information from each address. As I said, those investigations are continuing. He referred to piloting. I have no doubt that it is useful—indeed, we piloted the system for the re-preferencing exercise with the help of the BMA and Academy junior doctors and it worked well. However, the security breach that occurred last Wednesday was simply due to a decision by an individual at the IT contractor's. It was a case of human error, which I am afraid that piloting could not have predicted or prevented.
	The hon. Gentleman asked when the website would be restored. As I said in my statement, that will happen as soon as we are satisfied about security. He asked whether investigations are continuing, who by and whether criminal offences might have been committed. It is possible that criminal offences have been committed but we will not know that until the investigations have proceeded further.
	Perhaps I could stress to the hon. Gentleman that, as I said in my statement, in order to establish the enhanced level of security that I believe is now necessary—given the publicity that the site has attracted and the danger of further or additional attempts to hack into it—we have brought in the country's leading experts on the subject: the Communications Electronics Security Group in Cheltenham, which is part of the National Technical Authority for Information Assurance, will be quality assuring the security arrangements.
	The hon. Gentleman asked about the number of applicants for foundation programme posts whose personal details had been made available in this wholly improper manner to the postgraduate deaneries. The number of medical graduate applicants involved is just over 6,000. He referred specifically to the case of the Surrey-born doctor who was told that he was ineligible. It is not, however, the MTAS system that makes decisions about eligibility; it is the individual deaneries. I understand that that case was raised with the help desk—some others certainly were—during the re-preferencing exercise, and such cases were quite properly referred to the individual deaneries to sort out. If the hon. Gentleman gives me further details of that case, however, I will ensure that the deanery concerned sorts it out.
	We are keeping in close touch with the postgraduate deaneries on this issue, and at this stage we expect the additional 15,500 or so round 1 interviews to be completed by early June. As I have already said, information on the dates for those interviews is already being made available by the individual deans. Appointments will then be confirmed—or, where necessary, changed—either directly through MTAS, when it is restored, or through the deaneries' making other arrangements to contact the applicants concerned.

Patricia Hewitt: I have already explained what we are doing about the two lapses that took place last week, and the failures of Methods—human failings rather than inbuilt system failings—which allowed that to happen. On the much broader issue of the electronic patient record, we have known from the beginning that it was essential to have the highest possible level of security before putting confidential medical details about NHS patients into an electronic system. It is well worth saying, however, that the current manual system is not exactly a model of security, and that regrettable breaches of privacy and confidentiality have been reported on various occasions over many years. Because of the concerns about electronic patient records, we have gone to considerable lengths over some years to put in place a carefully worked-out patient record guarantee, and to discuss that with patient representative organisations, the BMA and many others in the medical profession. We are currently piloting the electronic patient record in a small number of places in the country, to establish that there is justified public confidence in the electronic patient record.

Andrew MacKay: Will this arrogant Secretary of State for once simply say sorry, instead of blaming Channel 4 News and ITN for the shambles?

David Drew: Will my right hon. Friend confirm that both the BMA and the royal colleges are still in favour of reforming the system of appointment to training posts? If not, when did they change their minds? It would be helpful if there were at least some consistency from the medical profession.

Patricia Hewitt: The BMA and the Academy of Medical Royal Colleges have been involved for many years in the review of medical training that has led to the decision to create modernising medical careers, as they were also involved in the successful establishment of the foundation programme two years ago. They remain closely involved, in particular through Professor Douglas' review group, in helping to ensure that we overcome the serious difficulties that have arisen with the MTAS system. Those difficulties do not call into question the underlying principles of modernising medical careers or the substance of the new training programme, which remains widely supported. The problems have arisen, in the first year of transition to the new specialty training posts, with the system for application, shortlisting and interviewing. We are in the process of working through that, and I am grateful to the BMA and the Academy for continuing to help us ensure that as quickly as possible we get junior doctors properly interviewed and job offers made—and that we do that in a way that is absolutely fair to junior doctors and meets the needs of the service and, above all, of patients.

Mr. Deputy Speaker: Order. If I am to call all Members who still wish to ask a question of the Secretary of State, I must ask for there to be single questions and brief answers.

John Bercow: I beg to move,
	That leave be given to bring in a Bill to require the provision of speech and language therapy for young offenders; and for connected purposes.
	In preparing today's Bill, I have been indebted to Juliet Lyon and Jenny Talbot of the Prison Reform Trust, and to Kamini Gadhok and Jane Mackenzie of the Royal College of Speech and Language Therapists. The problem is simply stated: more than 60 per cent. of the 11,000-plus young offenders in institutions today lack the communication skills to engage effectively and profitably with educational programmes, with courses in behaviour and anger management, and with initiatives designed to enhance their thinking skills.
	The House will be aware, not least from the work of the educational charity I CAN, that it is estimated that the lifetime cost of the failure to treat communication disorders is of the magnitude of £26 billion. We are also commonly reminded that some 80 per cent. of young offenders reoffend: they go through the revolving door of the criminal justice system over and over again. We also know from a vast literature of published evidence of repute and academic expertise that a lack of education and the inability to communicate are risk factors in reoffending. People in the situation that I have just described are less likely to obtain a qualification, less likely to land a job and less likely to find a home; conversely, they are more likely to suffer emotional and behavioural problems, more likely to experience mental health challenges, and more likely to commit, or to go on to recommit, crime.
	That is the situation with which this country is faced, and it prompts the obvious question: what can be done about it? I put it to the House that we could do a lot worse in dealing with this client group of people with severe communication disorders than to go for a significant, far-reaching and intensive programme of speech and language therapy.
	As chief inspector of prisons, the then Sir David Ramsbotham—now Lord Ramsbotham—visited Polmont young offenders institution in Scotland. There he had an intriguing and memorable conversation with the governor of the institution. Going round the prison estate, he was struck by the governor's observation that if by some mischance he was obliged to get rid of all the institution's staff, and if it was within his discretion, the last person to be let out of the gates would be his speech and language therapist, because of the invaluable extra that that person provided for the institution and the young people incarcerated there.
	Sir David subsequently became aware, as others will have done, of the work undertaken on commission for the Home Office by the Learning and Skills Research Centre as long ago as 2001-02. A study of a particular group of young offenders in an institution found that when that group were given help with their oral communication skills, they were 50 per cent. less likely to reoffend in the year after release than the group who were not so helped. The reoffending rate was cut from a typical rate of 44 per cent. to 21 per cent. Armed with the impressionistic material and the empirical evidence, the chief inspector of prisons said to the Home Office, "I think that this is significant. I have taken advice and I am told that the most distinguished speech therapist in England is Professor Karen Bryan. I would like to undertake a two-year trial at particular institutions, to see whether help could effectively and cost-effectively be provided."
	It was agreed that the trial would go ahead, and it took place under the auspices of Professor Karen Bryan between 2003 and 2005. Speech therapists were appointed at Brinsford and Werrington young offenders institutions, both of which are in Staffordshire. Working to Professor Karen Bryan, their responsibility was to assess, to diagnose and to plan effective interventions to help those young people. The young offenders suffered from a miscellany of difficulties, but the significant point is that they suffered from difficulties of hearing, of listening, of understanding, of remembering, of relating to people and of expressing themselves in terms that were simultaneously comprehensible and legitimate.
	At the end of the two-year study, which was privately financed courtesy of Lady Helen Hamlyn, Professor Bryan concluded that 100 per cent. of the young offenders studied would benefit from, or—to put it more strongly—were palpably in need of speech and language therapy. The report went to the Government. What did Ministers say? They were full of plaudits. The response was laudatory. They were grateful for a striking, important and valuable piece of work. One could deduce from Ministers' observations that the report would have a significant influence on future Government policy. Therefore, I am bound to inquire what, two years on and in the light of those public ministerial utterances, has happened. The answer is: absolutely nothing.
	To add insult to injury, in December 2005 the Department for Education and Skills published a document entitled "Reducing Re-offending Through Skills and Employment", which consisted of 47 pages, 20,000 words and no fewer than 58 footnotes, but made not one reference to speech and language therapy. In the House of Lords on 27 October, Baroness Scotland of Asthal said that there was no problem, because the service was "already available". If people were identified as having a problem, they were referred. The unspoken message that we were entitled to take from those remarks was that if there was a problem, it was being handled and there was no reason to worry. That is cold comfort, and rings hollow to the people at the coal face who know that it simply is not the case. The impression was given that it was happening, but it is not; that people can get the help, when they cannot; and that the system will work, when it will not.
	There is an institutional paralysis at the heart of the system, not noticed by the Under-Secretary of State for the Home Department, the hon. Member for Bradford, South (Mr. Sutcliffe) in dealing with the Offender Management Bill—and it is the fact that the Home Office, the Department of Health, the Department for Education and Skills, the Youth Justice Board, the Prison Service and children's services are all involved. When everyone is responsible, no one is responsible. Nothing happens, nothing changes and nothing beneficial accrues.
	The proposal in the Bill is simple. I suggest that we should cut the Gordian knot and place responsibility firmly in the hands of the Home Office. It provides that every young offenders institution—all 18 of those that cater for young men and the four that cater for young women—should be required to employ a speech and language therapist. That person would screen, diagnose and provide. The cost, at £34,000 per therapist, is infinitesimally small compared with £30 million spent on the respect agenda, or the £80,000 per head cost of uselessly and unproductively incarcerating someone who, we can confidently predict, left untreated, unqualified, unreformed and unemployed, will come back into a young offenders institution all over again.
	I understand the strength of public feeling that says that when people commit serious crimes they must be locked up and pay their dues. The deprivation of liberty must take place. But we have to give people hope. We have to do something to make a difference. My Bill is not a panacea, but it would improve lives, offer opportunities and do something to hold out the prospect that those young people who are on the wrong track can become productive, effective and worthwhile citizens. I am proud of my Bill, which enjoys cross-party support, and I commend it with enthusiasm to the House.
	 Question put and agreed to.
	Bill ordered to be brought in by John Bercow, Mr. Kevin Barron, Mr. Richard Benyon, Angela Browning, Mr. Tom Clarke, Mr. Geoffrey Cox, Mrs. Joan Humble, Mr. Ian Liddell-Grainger, Bob Russell, Mr. Ben Wallace, Hywel Williams, Sir George Young and Mr. Geoffrey Cox.

Peter Bottomley: On a point of order, Mr. Deputy Speaker. During the exchanges on the modernising medical careers statement, the Secretary of State said that she was going to get in touch with the chairmen of ITN and Channel 4 because of the time taken to get in contact with the Department. One of the rules of Parliament is to maintain an open society, with a media able to investigate and report. Has there been a change of policy that requires Secretaries of State to comment on the actions of the media, instead of the other way around?

Alan Haselhurst: It may be for the convenience of the Committee if I say that it will be in order to refer to schedule 18 in the course of the debate. I would then expect that the amendments to the schedule will be taken in short order, and similarly the formal question on schedule 18 being the schedule to the Bill.

Edward Balls: Thank you for your guidance, Sir Alan. It is a great pleasure and honour for me to serve for the first time under your chairmanship in a Committee of the whole House.
	Clause 67 relates to changes to the relief available to individuals for their pension contributions that are used to fund personal term assurance policies, and it also introduces schedule 18 of the Bill. In summary, clause 67 and schedule 18 are a response to a process of consultation with industry, announced at the time of the pre-Budget report, on the application of tax relief to personal term assurance. Throughout that process, and indeed throughout the whole consultation period when developing the new pensions tax regime in the period up to A-day on 6 April 2006, the Government have consistently applied the PBR's principles for providing tax relief—namely that such relief should support saving for an income in retirement.
	Indeed, the Government stated in the 2002 consultation document issued before A-day that
	"to encourage people to save in a pension, the Government awards favourable tax treatment...which people must use to provide a secure income in retirement. Most of the savings built up in this way must be used to generate a taxable income in retirement."
	The tax reforms that came into effect last April removed the complexity that had led over many years to different tax rules applying across numerous types of pension scheme. The long-term benefit is a streamlined regime that is easier to understand and cheaper to administer and which was at the time, as it is now, broadly welcomed by the pensions and savings industry.
	As we announced at the time of the pre-Budget report, we became aware in the summer and autumn of last year that a problem was occurring due to the rapid growth of pension term assurance—a life insurance death benefit that in most cases was providing no income in retirement. It was leading to rising costs and was clearly at odds with the principles we had set out. To deal with the problem, we announced in the pre-Budget report that we would work with the pensions industry to explore, in time for the Budget, how our principle that pensions should be tax-advantaged to provide an income in retirement could be applied to pension term assurance contracts. We announced that any changes we decided to make would not affect either personal arrangements entered into before 6 December 2006 or existing types of employer arrangements.
	Following detailed discussions with industry representative bodies, such as the Association of British Insurers, it became clear that a meaningful link could not be provided between those policies and pension saving without making the products commercially unviable or leading to high compliance and tax costs to Her Majesty's Revenue and Customs and the Treasury. That is why the Budget announced the changes before us today.
	In making the changes, we have worked with the industry to protect the position of consumers who had taken out policies before the pre-Budget report announcement in 2006 and, as I will set out in more detail later—either in the debate on the amendments or in the wind-up—we have tabled amendments to the transitional arrangements in schedule 18 to ensure that they work in the best interests of the consumer. On that basis, given the amendments we shall propose to the schedule, I commend the clause to the Committee.

Mark Hoban: As the Economic Secretary indicated, clause 67 abolishes pension term assurance, which was introduced in its current form in the Finance Act 2004 and was part of last year's A-day reforms to introduce pensions simplification. This is the third major pensions U-turn since the 2004 Act; it follows hard on the heels of taking residential property out of self-invested personal pensions and the changes to alternatively secured pensions foreshadowed last summer.
	I am concerned about the implications of the abolition of pension term insurance and I have four key questions. First, should not the attractions of pension term assurance have been apparent to the Treasury at the outset? Secondly, how has the Government's thinking evolved over the past few years? The Economic Secretary gave us a flavour of that, to show that it had remained constant, but I contend that the Treasury's thinking has changed since the 2004 Act. Thirdly, how did the industry respond to the Government's concerns? Finally, what are the consequences both for the pensions life insurance industry and for consumers?
	First, however, I shall consider why pension term assurance was introduced in the Finance Act 2004. Members on both sides of the House are lucky. As part of our pension scheme we receive a death-in-service benefit. When we die our widow or widower will receive a lump sum, on top of their pension. Our contribution to that benefit is tax-free. If I die as a Member of the House—

Mark Hoban: It is not something I am anticipating but if, unfortunately, I died while I was a Member my wife would receive a lump sum, which she could use to pay off our mortgage, thus freeing up income. Alternatively, she could invest the lump sum to provide an income.
	A substitution effect arises from the death-in-service benefit. The lump sum can be invested either to generate an income or to pay off a mortgage to increase disposable income. The importance of that point will be apparent when I discuss the evolution of the Government's thought process a little later in my remarks.
	I am very fortunate as a Member to have that benefit, but others are not so fortunate. People who are self-employed, for example, will not have the same benefit and will have to pay for it themselves. Prior to A-day, this type of cover could have been subject to tax relief as part of a pension policy. Now, however, as we shall see later, even that is not available to the self-employed. Anyone not covered by an employer's scheme will have to bear the full cost of cover—something that we do not have to do. In fact, we are doubly lucky because in a sense the cost of benefit is split between us and our employer. Someone who is self-employed will not only have to pay the full cost of a stand-alone policy, but will not receive any tax relief either. That raises real questions about the affordability of protection cover for many people on low or moderate incomes.
	The change that the Government have introduced creates some ironies. We will recollect that yesterday we discussed the incentives for incorporation in respect of small traders. As  Taxation recently noted, if the policy is paid for by the employer, it is acceptable. That leads to the ridiculous situation whereby someone operating through a personal service company can get tax relief, but a sole trader or partner cannot. Yesterday, the Government tried to reduce the incentive for incorporation, but this afternoon we are discussing changes that have encouraged it.
	When pension term insurance was introduced, the perspective from the industry was that it would lead to the closure of the protection gap. People out there on low and moderate incomes feel, as I said earlier, that they cannot afford life cover to provide for their dependants in the event of their death. It is worth reflecting on a recent article in  Money Marketing by Vanessa Owen of Liverpool Victoria. I am afraid that I am going to refer back to it regularly throughout my remarks, because it provides an insightful view of the development of opinion in the industry about the introduction and development of this product and its subsequent abolition. She said:
	"Everyone, including consumer bodies and the Government, understand that most people do not have enough life protection to cover sudden death of the main breadwinner or family carer. It is in all our interests to encourage more people to provide for their dependants and reduce dependency on the state. Despite all the talk about the size of protection gaps, since Swiss Re published its data, the problem has got bigger, with everyone scratching our heads over how to solve it. Then came pension term assurance."

Mark Hoban: I will happily give way to the hon. Member for Wirral, West (Stephen Hesford) who pre-empted the Economic Secretary by a second. I am sure that the Economic Secretary will remember that in the future.

Edward Balls: To go back to the question of principle—it is important that we establish the principles that are guiding us in these debates—the hon. Gentleman quoted one of my predecessors, a former Financial Secretary, talking about tax relief for pensions. But the question of term assurance is not about pension income. It is about a death benefit. It is a life insurance product. Does he accept that it was never our intention to tax relieve non-pension savings in the manner that has transpired, or is he saying that introducing a tax relief for term assurance is his proposal to close the contributions gap—as he referred to it?

Mark Hoban: That is slightly curious. If it was not the Government's intention to introduce tax relief for pension term assurance, why on earth did they include it in the Finance Act 2004? The Government put the measure forward three years ago, in that Finance Act, but are now seeking to reverse it. If it was not their intention to have that provision, why did they include it in the first place? That is the problem that the Economic Secretary has to think about. The reality is that the measure was well understood by the industry. Perhaps the Economic Secretary will tell us why the Government included the provision in the Finance Act 2004, because the Committee would be interested to hear that. I would happily give way to enable him to give that explanation.  [ Interruption. ] The Economic Secretary says that he will give an explanation in his speech. Well, we have heard that before.
	If we go back to the Committee  Hansard for the 2004 Finance Bill, it is interesting to note that there was no discussion whatsoever on the introduction of pension term assurance. According to my reading of  Hansard, that clause seemed to pass through without comment. The then Financial Secretary to the Treasury did not give the merest warning that abuse could lead to the scheme being closed down; that is in stark contrast to the warning that she gave about alternatively secured pensions.
	The Government introduced the tax relief back in 2004, and when one talks to people involved in the industry, one finds that their view is that the Government should have been aware of the impact of the relief on the life assurance market. As the Association of British Insurers said:
	"Even before this change was made, the insurance industry told the government of the positive effect this could have on the term assurance market."
	It was an opportunity for that market to rejuvenate itself. That should have come as no surprise to the Treasury. Indeed, some people were so concerned that the change would lead to a large-scale re-broking of business that they started to lobby the Treasury. I once again point out what Vanessa Owen of Liverpool Victoria said:
	"When I first read the proposed death benefit rules back in 2004, I wondered if boards of directors across the country would be turning pale at the risk of churning to in-force books. But after much lobbying, it became clear the rules were not going to change before A-day".
	There appears to have been plenty of discussion and debate before A-day, and what happened should have come as no surprise. Indeed, when I spoke to a group of industry experts in January this year, I specifically asked them whether the take-up of pension term assurance should have come as a surprise to the Treasury, and they emphatically said no; the Treasury should have been aware of the scale of interest.
	The effect of the A-day change was to encourage people to think again about life assurance, as they could pay their premiums net of the basic rate of tax, if they were basic rate taxpayers, or net of the higher rate of tax, if they were higher rate taxpayers. When consumers went to see their financial adviser or someone at the bank, the person giving them financial advice would have been remiss if they had failed to point out that they could take out pension term assurance at a lower cost than normal life assurance, because of the generous tax relief introduced by the Government in their Finance Act 2004. It is worth considering one insurer and the rates that it was offering. According to an article in  The Times, a male non-smoker buying £300,000 of level-term cover from Legal & General would pay £27.25 a month in cover. If he chose pension term assurance, he would pay £25.25 a month in cover if he was a basic rate taxpayer, but if he was a higher rate taxpayer, he would pay only £19.39. I suspect that the hon. Member for Wolverhampton, South-West (Rob Marris) is thinking about the difference between £27.25 and £25.25 and saying to himself, "That does not sound like the basic rate reduction," and indeed it is not. There is recognition in the industry that the cost of pension term assurance cover was higher than the cost of basic cover, if we exclude tax relief.
	There were significant caveats about pension term assurance cover. As Richard Eagling, the editor of  Investment, Life & Pensions Moneyfacts says:
	"Although price is not the only differentiating factor to be considered when choosing between the two, the cost savings cannot be ignored, and for those clients who have no existing cover in place, the case for PTA is compelling."
	Consumers were warned that the policy might not be for them, as an article in  The Sunday Telegraph said:
	"For a start, only basic life insurance is available with these PTA packages. The tax-breaks do not apply to extras that are often added on to conventional term assurance products, such as critical illness cover which pays out if you suffer a serious illness that leaves you unable to work. Family income benefit is not covered either—this product pays out an annual income on death rather than a lump sum."
	So there were caveats in respect of the sale of such policies; it was not a straightforward slam dunk, as it were, to sell the policy to clients. There was a proper process that had to be gone through. Certainly, the increased affordability of term assurance would enable people who had previously found life cover prohibitive to take greater personal responsibility for their family, but as I said earlier, it also gave those with existing life cover the chance to see whether their cover could be re-broked.
	Again, Vanessa Owen made some perceptive comments about what happened in the industry at the time. She said:
	"What we did find was that, although not a storm, life protection volumes started to pick up from all channels. Consumers were interested in the tax relief message which was clearly stimulating demand although, judging by our average premium levels, it was not wealthier clients who were buying but people on more modest means.
	In other words, it was not just the wealthy who were taking advantage of another opportunity to claw back higher-rate tax relief but also regular policyholders looking to take out life cover at a competitive rate."
	What about churning—the re-broking of in-force life protection? Vanessa Owen said of the in-force life protection book:
	"It has remained largely intact, with rebroking activity at a minimal level",
	so it appears from her evidence that people on low and moderate incomes were taking the opportunity to put in place cover that they may have considered too expensive before.
	The interest in pension term assurance should have been apparent at the time. It certainly seemed to attract new customers. Has the Minister asked his officials to conduct any research into who purchased the products, and did the research that the Government conducted reflect Miss Owen's perception of the change of business in the market?
	If so many businesses were thinking of taking advantage of the introduction of pension term assurance—clearly, the Liverpool Victoria thought about it—why was that not obvious to the Treasury? Plenty of people seem to have told the Treasury. Why did not the Treasury realise sooner what the take-up rate would be, or was it so naive that it did not think it would happen after all, or so incompetent that it did not think of taking action prior to A-day?
	It is worth noting the cost of the Government's failure to take action. According to the regulatory impact assessment, the estimate for lost tax revenues if the clause is not reversed would be £160 million, out of a total estimated cost of £250 million for A-day reforms. What was the Government's original estimate of the amount of tax relief that would be claimed as a consequence of introducing pension term assurance? Presumably, in their calculation of the £250 million, they would have produced an estimate back in 2003-04. It would be interesting to understand the difference, from the Minister's perspective, between the original estimate and the current revised estimate, as set out in the regulatory impact assessment. If the Minister knows, I should be grateful if he would enlighten me and the Committee about the difference between the estimate at the time that the A-day reforms were consulted on and the £160 million cost referred to in the regulatory impact assessment.

Edward Balls: I fear that the hon. Gentleman is in danger of misleading the Committee. The regulatory impact assessment refers to the cost that would arise to the Exchequer, had we not taken action at the time of the pre-Budget report. As I said, it was never the Government's intention to incentivise through pensions tax relief what became a rapid switch to pension term assurance. It was to prevent that cost arising that we acted. I am still trying to work out whether the hon. Gentleman is supporting our action to protect the revenue base, or advocating a reversal of the 1984 decision not to tax advantage life assurance. On that question of principle, he still has not given us any clue.

Edward Balls: The estimate would have been that it was a negligible cost, because it was not the Government's intention to tax advantage term assurance. The hon. Gentleman is not answering the question whether, as a matter of principle, he supports the extension of tax relief to life insurance and term assurance products to close what he has called "the coverage gap". Until he answers that question, it is hard for the Committee to understand whether he supports or opposes our proposals. At the moment, he is just drifting in the middle.

Philip Dunne: My hon. Friend is ploughing a steadfast course through the middle of the Economic Secretary's argument, and he is right to press the Economic Secretary. I have struggled through the Red Book in an attempt to find an estimate of the current cost of relief to the Treasury, but I could not find anything. The Economic Secretary has told us that he anticipates that the amount was negligible in the past, which suggests that the Treasury had no idea not only what the relief would amount to, but that it was allowing it in the first place—he has just told us that it was unintentional relief. My hon. Friend is doing a noble thing in getting to the bottom of the matter.

Mark Hoban: The Economic Secretary has nodded, and I am delighted that we will be furnished with that information.
	I want to refer to a broader point in that context. At one level, this Government, more than any other Government, understand the behavioural impact of changes to the tax regime; otherwise, the Chancellor would not meddle in the tax regime quite as frequently as he does. At the same time, there has been a fundamental failure properly to think through the behavioural impacts of those changes and the extent to which increasing reliefs, cutting rates or increasing allowances would change people's behaviour. The Association of British Insurers indicated prior to A-day that those products would have a positive impact on the term assurance market with new policyholders taking advantage of the increased affordability of products.
	The Treasury does not seem to have responded. It does not seem to have thought through whether the situation would encourage new participants to enter the market and offer new policies to try to close the protection gap. One of the problems is that the Government have not properly thought through their A-day reforms; that is why this is the third U-turn on those reforms since they were legislated for in the Finance Act 2004. Slowly but surely, the Economic Secretary is unpicking the work that one of his predecessors, the right hon. Member for Bolton, West, did when, as Financial Secretary, she was responsible for the same areas that he is at the moment. I feel sorry for her at times. She must be wondering why on earth she spent so much time working on these reforms only for the Economic Secretary, who was at the Treasury at the time advising the Chancellor in some capacity, to conduct a series of U-turns once they were on the statute book.
	We can see how, and how quickly, the Treasury's approach to pensions has unravelled over the course of the past couple of years in moving on from the intention that was set out in the then Financial Secretary's speech in Standing Committee only three years ago. In the context of the Pensions Commission report, the 2006 Budget said that one of the five tests that the Chancellor set to see whether these reforms were acceptable to him was whether they would promote personal responsibility. Yet here we are with a product that would appear to promote personal responsibility and reduce dependency on the state but that the Government are seeking, through this clause, to abolish.
	In last year's pre-Budget report there is a section headed "Fairness for tomorrow's pensioners", where, at paragraph 5.77, the Government casually say that they have
	"become aware that, at a result of the flexibilities that the new pensions tax regime has brought in, life insurance policies that provide lump sum death benefits alone are being offered as personal pension arrangements eligible for pensions tax relief."
	If the industry knew about it prior to 2004 and A-day, why did the Treasury just happen to become aware of it? Surely it should have played a much more active role in understanding what was happening in the market and what would be the impact of the legislative changes that suddenly crept into the Finance Act 2004.
	In this year's Red Book, we have greater amplification of the Government's approach to pensions tax relief so that no one could be in any doubt about what might happen in future. It sets out some key principles that have guided and continued to underpin the Government's approach to pensions tax relief, one of which the Economic Secretary repeated in his brief opening remarks. It says that
	"generous tax relief is provided for pension saving to produce an income in retirement. Pension saving is not, however, provided to support pre-retirement income, asset accumulation or inheritance".
	Let us ponder for a moment the meaning of that principle. The death in service benefit that our widows and widowers receive on our death as Members can be used to be invested in an income in the same way as a widow's pension. It can be used as an alternative to pay off the mortgage so that their existing income is protected. Yes, we are talking about a lump sum that is gained on death, but the purpose to which it is put can enhance the widow's or widower's pension by supplementing it through direct investment or by repaying the mortgage debt with which so many people are burdened.

Philip Dunne: Just for clarification, could my hon. Friend enlighten the House as to whether such payments into pensions arising on death in service will be made free of taxation?

Mark Hoban: If one is a member of an occupational scheme, the contributions are subject to tax relief, and many such schemes clearly include death-in-service benefits. The Government are trying to remove the opportunity for those who are self-employed or not part of such a scheme to receive the tax relief on a stand-alone, pension term assurance policy. Another key principle that underpins the Government's approach to pensions tax relief emphasises that point. The Red Book states that
	"incentives for employer contributions are provided as it is more efficient for pensions to be provided on a collective basis through the employer".
	What happens to those who are not in employment—the self-employed and temporary workers? They will not benefit from tax relief on a stand-alone policy. Indeed, other changes make it more difficult for them to get that tax relief. They will have to bite the bullet and not only pay the costs that we pay in our pension contributions and the sort of costs that the Exchequer pays into the parliamentary pension scheme, but get no tax relief. They are therefore hit by a triple whammy and in a far worse position than us as employees in the context of death-in-service benefit and how to fund it.

Edward Balls: It is the last time that I shall try. The hon. Gentleman has clearly outlined the principles that guide the Government's approach, which I set out in a speech a month or two ago and has appeared in repeated documents. His speech makes it clear that he disagrees with those principles because he advocates the use of pension tax relief to pay for term assurance, life assurance and products for individuals. As I said, that is a reversal of the 1984 position. I shall give him one last chance to confirm that he is taking that principled position. He was concerned when I suggested that it was unprincipled. Have I outlined his principled position? This is his moment.

Mark Hoban: That was a simplistic question. People oppose measures for many and varied reasons. If the hon. Gentleman survives into Opposition, perhaps he will understand the way in which such decisions are made. I am not sure whether I hope that he experiences that, but he might.
	My final quote from the Red Book demonstrates the hubris of a Government who are 10 years into their life. It states:
	"The Government recognises the importance of a stable environment that allows the pensions industry to plan ahead and minimise disruption to the regimes already in place that are working well."
	That comes from a Government who have already made three main U-turns on their post A-day reforms. How many more are consistent with maintaining
	"a stable environment that allows the pensions industry to plan ahead"?
	When the Economic Secretary read that bit and let it go through, he must have smiled at the irony of those remarks, and at how many people in the industry would not recognise the Government's principle in relation to the reforms of the pensions system. Another principle is that the cost of pensions tax incentives must be affordable and fall within current fiscal projections. I am sorry that I forgot to mention that earlier, because it is relevant here.
	This raises a doubt in my mind, and in the minds of those in the industry, about what other changes might be planned if the cost of these reforms continues to mount. Will the Economic Secretary unpick other measures in next year's Finance Bill? Will the Government take fright at the levels of the lump sum contributions that many people are putting into their pension schemes this year? I recognise the importance of the argument about affordability, but this leaves the door open to further U-turns in the future.
	Where does this leave the consumer and the industry? Let us consider the industry first. It estimates that it has invested some £35 million in new systems and processes to introduce the type of policy that the Government have created, and that sum will have to be written off. This sudden withdrawal without consultation has left an estimated 50,000 policy holders in the pipeline. Insurers could not deal with inquiries promptly because there was so little information available from the Treasury when the announcement was made.
	The final details of the transitional arrangements were announced only on 13 April, a few days after the previous deadline had expired. That is not an orderly way in which to conduct business. I know that the industry is pleased that those transitional changes have been made, and we should welcome them on that basis, but this is not the way to make policy. All sorts of changes had to be made by the industry: automated advice systems had to be amended to redirect customers to alternative products, for example, and the industry now has sub-scale portfolios of business to administer for the next 25 years or so.
	The Minister and I agree on the importance of maintaining London as a global financial services centre, and we recognise that insurance, along with other financial services, covers a global market. Companies seeking to expand their businesses need to think carefully about how and where they use their capital. It will not help the UK market if there is a perception that we have an unstable, unpredictable pensions tax regime.
	It is also worth pointing out that the industry has sought to reach a compromise with the Treasury on this issue. It has come forward with a series of proposals to facilitate the continuation of this type of business, as it recognises the importance of the protection market. It is also thinking of ways of avoiding writing off such a large investment in the new systems. It has proposed that all pension term assurance offers would contain clear information about the pension to which they were linked, including details of the provider and a policy number, reinforcing the link that the Government think is so important between the term assurance and the pension. That would produce an integrated policy that provided a pension and a lump sum death benefit. The industry put that proposal forward so that contributions could continue, but the Treasury rejected it. In effect, it rejected that position before A-day.
	The lack of clarity in the Government's position on integrated products is such that in one of today's amendments to schedule 18 we see explicit recognition of that type of policy and of the new transitional arrangements involved. The industry also suggested, as an alternative, that it would cap the amount of the lifetime allowance that could be utilised by taking out term assurance. A third of the allowance, about £500,000, was suggested, but again the Treasury rejected this attempt by the industry to reach a workable compromise.
	Many consumers have therefore been left with a protection gap. Those who are outside an occupational pension scheme will have to pay more for the coverage that all Members of the House take for granted. There is an uneven playing field, which favours those who are lucky enough to be in jobs that have a death-in-service benefit as part of the package, and disadvantages those who are self-employed or contractors. Perhaps more sole traders will be encouraged to incorporate, despite the Government's best efforts yesterday, to access the tax relief that comes from being an employee.
	Another important issue is that consumers and industry cannot assume that just because something is a Government policy one month, it will be a policy next month, next year or the year after. That undermines consumer confidence in saving for the long term. In a subtle but important way, it undermines the Government's long-term goal for more people to take responsibility for their financial affairs. That has a destructive effect on the industry and on consumers' willingness to plan for the long term. Every Member of the House recognises the importance of that, and we have had many debates about the Pensions Bill, which is an attempt to encourage more people to save for the long term. One message seems to be coming out from the Department for Work and Pensions, and a different one from the Treasury and the Economic Secretary.
	Two quotes highlight the combined impact of the change in policy. First, Vanessa Owen of Liverpool Victoria—perhaps I should start to pay her royalties, given the number of times that I have quoted her—said:
	"Our members and customers who do not have access to life assurance through their employer are now at a greater disadvantage because the option of tax relieved life protection has been removed."
	Secondly, according to AEGON,
	"Not to mention a complete waste of millions of pounds in making pension term assurance available in the first place, following extensive consultation with the Treasury."
	Finance Bill by Finance Bill, the Economic Secretary unpicks the work of the former Financial Secretary, the right hon. Member for Bolton, West. Instead of the clear, simple scheme that she advocated, we have an increasingly complex and restrictive scheme. It is surprising that the pitfalls were not seen, and warnings not given, when the legislation was introduced in 2004. The Bill is destructive—it undermines the confidence of consumers in the stability of the Government's pensions policy, inhibits both innovation and the sector's willingness to respond to Government initiatives, and is destructive of the Treasury's ability to make policy in an area in which long-term stability is fundamental if we are to promote long-term savings.

Vincent Cable: The hon. Member for Fareham (Mr. Hoban) spent three quarters of an hour teasing out the issues, as he put it. I shall be very much briefer.
	The hon. Gentleman started well in explaining the origins of pension term assurance, and making the point that it was an entirely innocent and reasonable way in which the industry should evolve. All individuals are faced with the question of how to hedge the risks when they look forward to their old age. There is the risk of death, and in that regard we provide for our dependants either in the form of a widow's pension or a lump sum. We must also hedge against the risk of living, and therefore provide an income for ourselves. It is entirely sensible and natural that the two sets of risks should be considered together, as many pensions providers do, and many of us are beneficiaries of such an arrangement. It was therefore natural that the industry should evolve a product that sought to provide those two activities together: pension term assurance. As the hon. Member for Fareham pointed out, in 2004, the Government saw no problem with that, and extended tax relief.
	With regard to the Government's answer, about which the Economic Secretary has intervened several times, there are two issues. He has laboured the point about the need to maintain the integrity of the distinction—which he calls the principle, although it is probably more an established practice than a principle—between tax relief for pensions and tax relief for life insurance. Clearly, that is established practice, and must be maintained. The practical issue, however, is not so much the restatement of that principle as tax avoidance. There are clearly individuals who have seen, and would see in this new product, an opportunity to maximise tax relief on life insurance products, particularly if they have high incomes and are able to take advantage of higher rates of relief.
	What I would like to know—and the Economic Secretary might strengthen his case if he could tell us—is how much of the £150 million or so that the Government hope to retrieve originates in the higher tax relief. If it is true that, as the hon. Member for Fareham suggested, this product was designed principally for people on low incomes, we can see that it may have evolved in a fairly innocent way; but if it is designed for high earners—we are talking about 40 per cent. tax relief—I am more sympathetic to the Government's view that there is a potential for avoidance. It would be helpful if the Economic Secretary could give us an idea of the relative proportions.
	The Liberal Democrats approach the matter differently from the Conservatives: from the opposite direction, in a sense. We are not trying to maximise the scope for tax relief. Generally, we have gone rather further than the Government in arguing that there is no justification for giving people on high incomes not just more tax relief, but higher rates of tax relief, on pensions, let alone life insurance. However, we agree with the Conservatives that the distinction between what happened in 2004 and what happens now has created confusion, and has not been terribly well handled.
	I should like to hear from the Economic Secretary how the Government responded to proposals from the industry. The hon. Member for Fareham summarised ways of meeting the Government's requirements that had been suggested by the Association of British Insurers and others, some of which seemed perfectly sensible at first sight.
	If the Government's primary concern was to maintain the link between life insurance and pensions, organisations in the industry were willing to propose ways of checking that it was being maintained. They suggested, for instance, that if someone died and life insurance was claimed, it should be checked that there was a parallel pension product to maintain the integrity of the connection. Perhaps the Economic Secretary will tell us whether that proposal was explored, and whether it was deemed feasible. Organisations also suggested a limit on the tax relief that could be available, and a mechanism for fraud-checking.
	I have a sense that the industry has gone out of its way to try to meet the Government halfway, addressing their central concern that there must be a link between the life insurance and pension elements. As for how far the Government have gone to meet the industry's concerns, I have an open mind. Our stance on whether the clause should stand part will be determined partly by how they respond.

Edward Balls: I am sure that the hon. Gentleman will remember the debates in the House over the issue of self-invested personal pensions, where it was regularly put to the Government by Opposition Members that SIPPs needed to be addressed—and subsequently they were. We debated that during the passage of last year's Finance Bill. Does he agree that, in the case of term assurance, prior to the pre-Budget report announcement of action, no points were put in the House by any Opposition Members to the Government about the need to address the issue at any stage? We have all agreed that action is necessary to protect the revenue base.

David Gauke: The hon. Gentleman may be right that those points were not made during the passage of the 2004 Finance Bill. One would have thought that the Treasury would be looking to spot those particular pratfalls. The Opposition do point out failures. I referred earlier to the zero per cent. band for corporation tax for small businesses, which was highlighted as a possible concern by Opposition MPs. There are times when things are not spotted by Opposition parties, but the hon. Gentleman will know—he was heavily involved in opposition—that our resources, compared to what is available to the Government and Treasury, are somewhat limited. He had access to a hotel room off Park lane, but those were perhaps the best facilities that any Opposition party has had. Often, one is talking about small numbers of people, but the Treasury is a mighty machine. It has the crème de la crème of the civil service working on these matters, yet constantly it seems to fail to spot some of these matters.
	I would have thought that Ministers would be concerned about that. There is certainly an example here of the Treasury not spotting the way in which a tax change would affect behaviour. That is not necessarily a party point, but it is a concern. I would have thought that Ministers ought to acknowledge that and to be worried about it.

David Gauke: I am grateful for that intervention. The hon. Gentleman and I have served on Finance Bill Committees before—he more often than me—and I think that it is fair to say that businesses that lose out as a consequence of tax changes tend to be the most vociferous in their lobbying of Committee members. The area under discussion was simplified by the Finance Act 2004, and it is unsurprising that there were relatively few contributions from industry as—I understand, because I was not a Member at the time—it generally welcomed the contents of the 2004 Act. That might explain why fewer submissions were made, but circumstances in which tax change measures favour industry are perhaps those in which the Treasury ought to be most alert and most alive to the potential impact.

Mark Hoban: My hon. Friend makes an important point about the extent to which people advise us that specific changes will have adverse consequences. It is my understanding that the Treasury should have been aware of the take-up prior to A-day. Certainly the industry believes that that was discussed with the Treasury prior to A-day. Therefore, although it might not have been able to make any changes to the Finance Act 2004, it certainly could have done so in the Finance Act 2006 on which I served, along with the Economic Secretary and the hon. Member for Wolverhampton, South-West (Rob Marris). That might have been the forum in which to make such changes, because I understand that the Treasury were aware then of the issues we are discussing.

John Bercow: I entirely understand my hon. Friend's lamentation that on the whole one certainly does not look for additional items to be included in Government legislation; on the whole one searches for measures that can be deleted from it. However, I hope that my hon. Friend agrees that, whatever the complexity of Government proposals, that is no excuse for unintelligibility. As a parliamentary point, let me say that when the Government decide that a change is needed, it is important that wherever possible that should be stated in clear terms in the Bill in question. Is my hon. Friend concerned that the order-making power in schedule 18 allows for regulations the content and detail of which we in this House might not see until some time after we have voted for the legislation? That will not do, it is not satisfactory, it happens under Governments of both colours and it ought to be changed.

David Gauke: My hon. Friend is a doughty defender of Parliament, for which we should be grateful, and he raises an important constitutional point about supervision. However, it is possible that this Finance Bill, in contrast to last year's, could do with more substance.
	Let me turn to a couple of additional points, which I would like the Economic Secretary to address. What analysis has the Treasury done on who will be the losers as a consequence of this tax change? It seems that there are certain beneficiaries of the Finance Act 2004—the self-employed, contract workers and so on, who would not normally be able to participate in occupational pension schemes that provide some kind of life assurance lump sum. The purpose of the 2004 changes might have been to simplify the system and to make better provision for these people, but it seems that they have suffered as a consequence. I might be wrong, however, and I should be grateful for enlightenment from the Economic Secretary.
	I should also be grateful if the Economic Secretary clarified the impact of the following development, which my hon. Friend the Member for Fareham addressed. My understanding is that before A-day—6 April 2006—tax relief was available for those individuals wanting to buy term assurance, if they were part of a pension plan that also provided pension benefits. As I understand it, that will no longer be the case, and I should be grateful—

David Gauke: I am afraid so. I have a final question for the Economic Secretary, on stability in the pension system, which my hon. Friend the Member for Fareham discussed in his conclusion. There have been a number of tax changes to the pension system. Has the Treasury analysed the impact of these frequent changes? Is the Economic Secretary concerned that such frequent changes increase instability? If there is an unstable environment—if people do not know where they will stand and what the tax system will be next year, or in two or three years' time—it does not encourage them to save. We surely need to look at that issue. I appreciate that there are difficulties and that we need to get the system right, but such constant tinkering—the constant attempt to encourage a particular approach, only to discourage it on seeing its perhaps being overused—is characteristic, I am afraid, of the way that the Treasury has been run in the past 10 years. Such tinkering is not necessarily good for stability, or to the long-term benefit of this country.

John Bercow: I am very grateful to my hon. Friend for giving way. The immediate impact on consumers of change after change should rightly preoccupy us, but there is another respect in which constant changes and growing levels of complexity are unhelpful: they tend to discourage market entry on the part of smaller-scale providers. One can end up, even without having intended this consequence, with a lack of competitiveness and a concentration of power in the hands of a relatively small number of highly powerful operators, who tend to enjoy better access to Ministers. That does not necessarily conduce to the public interest.

Edward Balls: No, I do not think so. Those who benefited were those who took out assurance policies such as life assurance. I pressed the hon. Member for Fareham to agree with me a number of times about that and eventually, on my fourth attempt, he did. Unless the Conservative party is willing to put up the £500 million to pay for an alternative proposal, I think that the hon. Gentleman and I are agreed that tax advantaging life assurance products through pension tax relief is not the way forward. If so, we were right to sort out the problem at the earliest opportunity. We did so, despite the fact that in the period before we took our decision, we were not pressured by Opposition Members or anyone else to do so. As I said, we put transitional arrangements in place, which were widely communicated to the industry and, I think, welcomed by it as a way of sorting out the difficult pipeline cases. Indeed, we were praised by the ABI for so doing.

Edward Balls: We would have had a considerably longer period between our decisive decision at the time of the pre-Budget report and the eventual enactment of the Finance Bill provisions, though our decision to act would not have been delayed because at that time the revenue risk was too great.
	I am not going to say that there are no lessons to be learned from the experience. In retrospect, the Government could have been clearer about their intentions and I believe that both the Government and the insurance industry together could learn some lessons about the process involved in tax policy making. Indeed, I spoke earlier today to the director general of the ABI about how to learn such lessons for future tax policy.
	In conclusion, the decision was taken in order to restore the Government's intentions to protect the tax base and to ensure that what we set out to do and what the Finance Bill legislated for—to tax advantage retirement saving—was, in fact, what happened. It was never our intention to tax advantage assurance. I do not think that the hon. Member for Fareham is proposing so to do, but if he wants to stump up the £500 million necessary to oppose the clause, I will be very interested to find out how he is going to pay for it.

Edward Balls: I want to pick up on a point made earlier about the use of the reserve powers to make regulations in the schedule. That is a complex subject. The Committee is in agreement—or at least, Labour Members are—on the intention behind the legislation but we want to make sure that future changes do not inadvertently lead to problems, and that is why we will not hesitate to use those secondary powers. The hon. Member for Buckingham (John Bercow) expressed concerns, but if there is any question of those secondary, negative resolution powers being used, I will make sure that I, or my successors, inform Opposition Members in writing of our intention to use the powers in plenty of time, so that we can ensure full consultation and consideration of the matter, both in the House and outside. With that, I hope that we can agree to schedule 18.

Rob Marris: I am bearing in mind the fact that we are in Committee, so I wish to make some more drafting suggestions to my hon. Friend the Economic Secretary. First, with the greatest respect to the right hon. Member for Wokingham (Mr. Redwood), he is wrong about what is now sub-paragraph (5A) of the schedule, as amended. If he looks at line 22 on page 218 of the Bill, he will see a reference to "paragraph 5", which is not bracketed. If he then looks at line 7 of page 219, where sub-paragraph (5A) has been inserted by amendment No. 9, he will see that it follows sub-paragraph (5), and that is in brackets. He has miscounted, but he is right to be wary of the wording of the Bill. I suggest to my hon. Friend the Economic Secretary that the parliamentary drafting should not refer to "premiums" but to "premia". "Premiums" occurs in lines 17, 20, 24, 28, 30, 31 and 39 of page 217 and in lines 2 and 20 of page 218.
	My hon. Friend said that he would kindly look at the use of the word "But", and that anathema and grammatical error also occurs in line 32 on page 217, in line 19 on page 218, and in line 20 on page 219. I urge the Treasury to have a word with its parliamentary draftspeople about the way in which the grammar of our language is used; after all, we are talking about statute.

Christopher Chope: Amendments Nos. 4 and 5 are consequential on amendment No. 3, because if the retrospective element is removed by amendment No. 3, the need for the remainder of the clause will be removed.
	Today is the 10th anniversary of the winning back of the Christchurch constituency from the Liberal Democrats. I do not know whether it is a delightful irony or generosity of spirit that has resulted in the Liberal Democrat Front-Bench team supporting the amendment in my name today. It may indeed be both. I applaud the fact that the Liberal Democrats are prepared to come into the Lobby to support those of us who are concerned about the principle of retrospective taxation.
	I have raised this matter on a number of occasions in the House. The first time was on 31 January on a point of order, on the eve of the implementation of the increase in taxes. As a result of Mr. Speaker's statement then, I applied for an Adjournment debate, which took place on 20 February. During the debate the Financial Secretary said that I would be able to return to the subject during the Budget debate and the Committee stage of the Finance Bill. He is right. I have taken up those opportunities, because we still do not seem to have persuaded the Government that they are doing the wrong thing by imposing retrospective taxation. That is why I hope the amendment will be supported this evening.
	That has been the view of all my right hon. and hon. Friends, and we have been involved in sending standard letters to our constituents, drafted with the support of our Front-Bench team. Those standard letters included the following words:
	"I do share your concerns about the implementation of the Chancellor's APD increases, particularly the retrospective aspect. I know that many individuals and companies have been hit by the increased duty being levied on holidays that were booked before the Chancellor's announcement."—
	holidays that were not only booked but paid for before the Chancellor's announcement—
	"It seems clear to me that Gordon Brown did not properly think through the consequences of this bungled raid on the travel industry. Indeed, a legal opinion received by the Conservatives suggests that the Chancellor's actions may even be illegal as it has not been approved by Parliament."
	I am informed that in the judicial review that has been initiated, the Government have until the end of this week to submit their response to that claim, and that it is likely to be heard before the end of July. So it was not an idle threat that their illegal act would be challenged. This is being followed up, no doubt at considerable expense, by the travel companies, which are especially outraged by what has happened.
	It is a long-standing convention of the House that Budget resolutions are not retrospective. That is why the amendment is designed to change the starting date for the air passenger duty increase from 1 February to 21 March—a seven-week deferral. The reason why I chose 21 March is that that was the date of the Budget. There was a Budget resolution on the matter, but prior to that there had been no opportunity for any Member of the House to vote on the increase in taxation. We now have the opportunity to vote on it again.
	During the vote on Budget resolutions, six of my right hon. Friends and 14 of my hon. Friends voted against motion 13 because we were concerned about the retrospective nature of the matter and because we regarded it as a constitutional outrage. I know that some of my right hon. and hon. Friends were concerned that to vote against the whole motion was going too far. That is why the amendment focuses much more narrowly on the issue of retrospection, and simply changes the date by seven weeks.

Christopher Chope: My hon. Friend is right. I know that he would have been in the Lobby with us on 27 March had he been in the country, but he was away on overseas parliamentary business at that time. The amendment has been drafted so that it deals with the one-off period of seven weeks. It reflects the concerns shared by my right hon. Friend the Leader of the Opposition and my hon. Friend the shadow Chancellor of the Exchequer.
	It may be immodest to recall that shortly after 31 January, when I raised my original point of order about the retrospective nature of the measure, I was having a sandwich lunch with my right hon. Friend the Leader of the Opposition, who congratulated me on the points that I had made and said that he very much shared my concern about the retrospective nature of the air passenger duty increase set out in the pre-Budget report and confirmed in the Bill.
	I know that some of my colleagues are still worried about the cost of delaying the increase by seven weeks. It is a large cost in layman's terms—about £100 million. That is an indication of the extent of this stealth tax introduced by the Chancellor of the Exchequer—a yield of about £100 million in seven weeks. Some of my colleagues are sensitive about supporting an amendment which could be misrepresented by the Government, who might say that we have a black hole in our calculations, and ask how we will manage to balance the books when we get into government if we have voted against the retrospective nature of the air passenger duty increase.

Julia Goldsworthy: On retrospection, is it not still the case that if somebody bought their ticket before 6 December, when the announcement was made, and was travelling after 21 March, the date that the amendment suggests, they would still be caught by the retrospective changes to the tax system?

Christopher Chope: The hon. Lady is right; the amendment is limited. I considered tabling another amendment stating that clause 12 should not apply in respect of anybody who paid for and ordered their tickets before 6 December. She has referred to another mischief, which is one of the reasons why a number of us are concerned about clause 12 in general. In a sense, that is a separate argument. It is a strand of the same retrospection issue, but speaking in strict parliamentary terms, I am talking about not increasing taxes on people in this country without allowing Parliament to vote on those increases.
	Although the Government say that they have only one Budget a year, they are using the pre-Budget report as an opportunity to announce tax increases—in this case, a tax increase of £1 billion a year—so the Chancellor can come along on Budget day and say, "This is a neutral Budget." That is exactly what he did this time, having conveniently forgotten that he had already announced a £1 billion tax increase in his pre-Budget report, for which he had not legislated or obtained parliamentary approval. The issue is important, and I am glad that there is concern among Conservative Front Benchers and in the wider House about retrospection.
	I want briefly to examine the idea that the tax is somehow justifiable because it is "green" or "environmental". I will not get into what I think is partly a semantic debate about whether this is a proper environmental tax—although in my view it is not. Even if it were an environmental tax, Conservative party policy, which has been announced by my hon. Friend the shadow Chancellor, is that we support green taxes, but only if they are offset by reductions in taxes elsewhere. The shadow Chancellor put it this way when he addressed the issue in an interview in "The World at One" on 1 February, following my point of order on the previous day:
	"I think there is a case for green taxes and bringing in an aviation tax but they should be replacement taxes".
	That is not consistent with saying, "We can't vote against any tax increases proposed by this Government." We have said, as a matter of policy, that we will vote against tax increases, and particularly those that purport to be green tax increases, unless they are accompanied by offsetting reductions in tax.
	The amendment is modest, and it does not go as far as some would wish, but it states the important principle, which we should stick to through thick and thin in this House, that we should not introduce retrospective taxation.

Paul Goodman: Why does the hon. Lady think that last time the Government substantially raised APD, they gave a year's notice of the rise?

Quentin Davies: I congratulate my hon. Friend the Member for Christchurch (Mr. Chope) on his principled approach to this difficult question, on the single-mindedness with which he has pursued his campaign for several months, and on his efforts throughout that time to draw to the attention of his colleagues in all parts of the House the importance of this issue.
	The hon. Member for Bishop Auckland (Helen Goodman) is a distinguished Member of the House to whom I always listen with pleasure, but it did not sound as though she understood the concept of retrospectivity. She cited in defence of the Government's proposals an occasion in 1985 of which I have no memory—although I do not dispute that it may have occurred in the way that she describes—in which the Treasury announced at 7 o'clock in the morning that a new tax would apply thenceforth. That is not retrospectivity, because all the trades done after the market opened at 7 o'clock in the morning would be done in knowledge that a new tax then applied.
	Retrospectivity is a very serious matter, and it is incorporated in a glaring or, I might say, an egregious fashion in the Government's proposals. It occurs when a transaction is concluded between two or more citizens who believe that no tax applies, or a certain type of tax applies, and then find afterwards that a new tax is levied on them. It is exactly as if I had agreed today with the Financial Secretary to buy his tie for—what would it be worth? I suppose £5 or so— [ Interruption . ] No, that is unkind—I will make it £10 or so. I am not actually making him an offer, in case he is getting excited. It is as if I concluded with him today that I was going to buy his tie for £10, gave him the £10 and received the tie or was promised its delivery, and then we were suddenly told the next day, the next week, the next month or six months later that a new stamp duty or purchase tax was being imposed on ties and I had to come up with another £500 to give to the Treasury for having concluded the transaction with him some time before. That would be retrospectivity. I can see from the reaction on both sides of the House that we all think that that is a completely fantastical situation which, if it arose, would be utterly intolerable and unacceptable. However, it is precisely the situation that we face.

Rob Marris: We are debating two principles this evening. First, the hon. Member for Christchurch (Mr. Chope) raised what might be called the constitutional principle. I understand that and I will be interested in the Government's response.
	Secondly, we are considering retrospection. I understand the principle that the hon. Member for Grantham and Stamford (Mr. Davies) enunciated. However, he has got it round his neck when he tries to give practical examples. That also applies to the hon. Member for Falmouth and Camborne (Julia Goldsworthy), with her ridiculous argument about consuming a bottle of whisky. They both fail to differentiate the purchase of a physical artefact—whether a tie, a bottle of whisky or a car—and the delivery of a service.
	For example, if the hon. Member for Grantham and Stamford looks back, he will realise that, when the Conservative Government, contrary to their electoral promises, raised the VAT rate markedly, that higher rate covered services, which were delivered after the change in the VAT rate, even though the agreement for providing them was made before the increase.

David Gauke: I am grateful for your clarification, Mrs. Heal, as to exactly what I am doing— [ Interruption. ] And I thank the hon. Member for South-East Cornwall (Mr. Breed) for his retrospective clarification.
	The difficulty for the Government is that the examples that they have produced generally relate to cases of a market-sensitive nature, such as the example given by the hon. Member for Bishop Auckland (Helen Goodman). No doubt we shall hear other examples from the Minister later in which there has been a delay before parliamentary ratification, perhaps because of a general election, for example.
	As I am now making a brief speech, I will ask the Financial Secretary to clarify one point. I remember that, immediately after the pre-Budget report, there were strong rumours floating around that the Chancellor had received strong advice from Treasury officials that this rise in air passenger duty could be attacked and that it might be illegal. It was also rumoured that the Chancellor had been advised to delay its implementation until after the Budget in March. No doubt there will at some point be a freedom of information request from  The Times seeking details of the advice that the Chancellor received, but I should be grateful if we could short-cut the process so that we do not have to wait two or three years for the answer. Will the Financial Secretary confirm or deny that the Chancellor received strong advice that this retrospective legislation could prove vulnerable in the courts?

John Redwood: I accept your advice, Mrs. Heal. I was illustrating that there are other ways of finding £100 million, and a lot more besides. We are discussing whether £100 million is absolutely essential to the future of the Government, and I was making the point that there are many popular ways for them to show that that £100 million is not essential to them.
	My hon. Friends on the Front Bench are probably worried, because they have seen what the Government can do, about what would happen were they to recommend that we vote against the measure. It would be scored as £100 million that the Conservatives would not have when they came to power. The reality is completely different, however. We all know that the Government are going to take this £100 million tonight, and many more hundreds of millions of pounds through this tax in the run-up to the next general election.
	Any sensible Government would accept the Opposition's position, which is that, in due course, nearer to the election, we will set out our tax proposals for a future Conservative Budget, but I hope that that will not get in the way of our vigorously opposing measures such as these, which are mean-minded and unpleasant. I hope that the Minister will think again, but I am sure that he is not going to. He obviously believes in retrospectively taxing the poor.

Christopher Chope: Has my hon. Friend seen that a consultation paper has been published today in relation to reviewing the guidelines? Having looked at that consultation paper, however, any expectations that he had that the problem would be solved will be dashed.

Paul Goodman: You are policing the conduct of the debate as vigorously as ever, Mrs. Heal, which is entirely appropriate. Let me reassure you that I do not propose to be dragged away from considering the amendments of my hon. Friend the Member for Christchurch (Mr. Chope), either by the general debate about the clause or by the Liberal Democrat amendments, which we will deal with in due course. During the opening debate, I will confine my remarks to the amendments tabled by my hon. Friend.
	I think that the record will reflect that, essentially, the hon. Member for Bishop Auckland (Helen Goodman) said that my hon. Friend was looking around for reasons to oppose the APD rise and had picked on the issue of retrospectivity as a kind of fig leaf. That is unfair to him: he has obtained an Adjournment debate on the subject, has campaigned persistently on the issue—I have had dealings with him on it—and takes the constitutional aspects of the business extremely seriously. Therefore, I had better have my wits about me in dealing with his amendments.
	Although Conservative Front-Bench Members believe that the retrospective nature of the rise is dubious at least, are sympathetic to the intention behind the amendments tabled by my hon. Friend and fully share his concern about the principles of retrospectivity involved, we part company with him to some degree on the likely effect of the amendments if implemented, and cannot support them if he presses them to a vote. I hope to have something reassuring to say to him later, but in the meantime I shall examine in detail the points about retrospection.
	As the hon. Member for Twickenham (Dr. Cable) said, these matters involve a certain amount of theology, and the whole question of whether the Chancellor, Treasury and Financial Secretary have acted retrospectively in relation to the clause has been closely considered, not least by the Treasury Committee, of which my hon. Friends the Members for Braintree (Mr. Newmark) and for South-West Hertfordshire (Mr. Gauke) are members. What it has said deserves some airing, because there has not yet been an opportunity to do so.
	If we review the history of the doubling of APD, we see that it is not altogether a happy story. The last significant rise, as I pointed out to the hon. Member for Bishop Auckland, was announced in March 2000 and implemented in April 2001. At that time, therefore, Ministers gave roughly a year's notice of the rise. They helpfully explained at the time that the delay
	"would allow airlines and tour operators plenty of time to adjust their marketing and pricing strategies to the new structure."
	That was only a few years ago.
	By contrast, the current rise was announced on 6 December last year, in the pre-Budget report, for implementation on 1 February this year—not a year's notice or even six months' notice, but less than two months' notice. There was no question this time, then, of allowing airlines, tour operators and especially passengers "plenty of time" to adjust. Indeed, those passengers who had already bought tickets dated after 1 February, and to whom price rises were passed on, were given, as my hon. Friend the Member for Christchurch said, no time to adjust.
	The Treasury Committee elegantly described that as the "first element of retrospection" of the rise that the clause seeks to bring into effect. We are therefore bound to ask the Financial Secretary: why the rush? Why did Ministers give a year's notice of the last significant rise in APD, but less than two months' notice of this one? I think that we know the answer, to which my hon. Friend the Member for Braintree alluded in relation to the evidence heard by the Treasury Committee. The Chancellor was not, it seems, overcome by an urgent desire to hurry through a reduction in emissions by the means of APD, but simply grabbing the first instrument to hand to help him to pay off the £153 billion that he plans to borrow over the next five years.
	There are more questions. For instance, what estimate has the Treasury made of the number of passengers who paid the new rates of APD on tickets dated after 1 February, when many airlines—as the Treasury will have anticipated—pass the cost of the rise to passengers, and what estimate has it made of the cost to those passengers? How much will they pay in total? Can the Minister confirm that the Federation of Tour Operators has issued judicial review proceedings against the Chancellor in relation to the rise, that the Government have acknowledged the service of the claim, that a judge has directed that they must serve their defence by this Friday, and that the court has directed that the case be heard quickly with the intention that judgment may be given by the end of July?
	I mentioned a moment ago that the Treasury Committee had described this manoeuvre as the "first element of retrospection". This takes us to what it described as the "second element of retrospection". It observed that
	"the liability to pay Air Passenger Duty at the new higher rates will effectively be incurred before the House of Commons has authorised the increase".
	The Committee concluded—I consider this an important section of what it said on the subject—
	"As a general rule, we consider that, where increases in rates of duties or taxes are proposed in the Pre-Budget Report, those increases should not come into force until after the House of Commons has had an opportunity to come to a formal decision on the proposed increase following the Budget. We draw the attention of the House of Commons to the unusual timing of the implementation of the increases in Air Passenger Duty, for which the Treasury has not cited any relevant precedents."
	That carefully crafted reproof—I do not know why the Financial Secretary is wincing; I am merely reading what the Select Committee had to say—suggests that any precedent cited by the Treasury was not relevant.
	The Financial Secretary is on record as citing two specific precedents: the supplementary charge on North sea oil announced in the 2005 pre-Budget report, which was introduced with effect for accounting periods from 1 January 2006, and the increase in fuel duty announced in the 2006 pre-Budget report and implemented from midnight. My recollection is that he cited both those precedents during the debate initiated by my hon. Friend the Member for Christchurch on 27 February. Unfortunately, both those precedents look a little dubious. As the House of Commons Library points out,
	"It is arguable that these examples do not provide a precedent that captures all the aspects of the rise in APD rates: for example, the amount of time between the implementation date, and the date the House formally approved the measure (i.e.: that it was a matter of weeks, not days); the nature of the tax change (that it was an increase in tax rates. Not just a tax continuation), and the fact that projected receipts from the change would not have been significantly affected by a delay in the implementation date (either from taxpayers taking account of the announcement, or external factors affecting the yield from the levy)."
	In other words—this touches on a point raised earlier by the hon. Member for Falmouth and Camborne (Julia Goldsworthy)—consumers have not usually pre-booked the fuel, or the alcohol or tobacco, that they consume immediately after a budget or pre-Budget report rise in duty on those products. The North sea oil supplementary charge was essentially driven by a strong surge in oil prices, and was implemented immediately to prevent forestalling—the practice of taking advantage of any implementation delay to amend tax planning strategies. As the Library puts it,
	"this type of calculation would not be relevant in setting the rates of an airport departure tax".

Paul Goodman: My right hon. Friend makes a fair point. A sword of Damocles is hanging over the Government. I do not think that the House of Commons is the right place in which to decide what change is legally in order and what is not, but it may well be that the Government have been as careless about the legal aspects as they appear to have been with the procedure.
	Where I part company with my hon. Friend, to an extent, is over his belief that passengers who purchased tickets between 1 February and Budget day, 23 March, and who have consequently had part or all of the Chancellor's APD rise passed on to them by the airlines, are likely to be reimbursed by them if his amendments are passed. This is a crucial point. Part of the debate has been conducted almost on the assumption that APD is paid directly by passengers, but in fact it is paid by the airlines. It is hard to see how the amendment would not simply result in a windfall for the airlines—a windfall of some £100 million, according to our calculations and also to my hon. Friend.

Paul Goodman: The key point, though, is that it would give relief to the airlines, because the airlines, not the passengers, pay the duty. One of my reasons for asking the Financial Secretary earlier how much of the increase had been passed on to passengers was the genuine uncertainty that exists on this point. We fear that as a result of the amendment the airlines might simply receive the windfall, say "Thank you very much" to the Treasury, and then not pass on the £100 million to the passengers.
	My hon. Friend seems to be arguing that the genie can somehow be compressed and put back in the bottle. We are not convinced that the damage caused to passengers by the companies that chose to pass on the retrospective rise can be addressed by the amendment, but we are certainly not happy to leave the matter there. Although we cannot support my hon. Friend if he insists on pressing his amendment to a vote, we intend to table a new clause at a later stage which will prevent the Chancellor's successor from behaving in the same way in relation to APD. I hope that it will have the support of my hon. Friend as well as that of other Members.
	In conclusion, this retrospective rise should not have happened. As my right hon. Friend said, it may be found to be illegal by the courts. However, it is genuinely difficult at this stage to correct the effects on passengers of a change in duty that has already come into effect—to put the genie back into the bottle or, groping for another cliché, to lock the stable door after the horse has bolted. However, as I say, we intend to table a new clause to prevent the Chancellor's successor from carrying out such a retrospective manoeuvre again.

Quentin Davies: In the event that my hon. Friend's amendment is passed and an airline subsequently refused to reimburse its customers regarding money that it had extracted from them on the basis that it needed to meet the tax liability imposed retrospectively by the Government, would it not be in a very weak position in the courts, having obtained money under entirely false pretences?

Christopher Chope: My hon. Friend is absolutely right.
	The sad thing is that the argument that the airlines might not reimburse the money and might pocket it for themselves and their shareholders is the only argument on which my hon. Friend the Member for Wycombe relies in saying that he does not want the House to support the amendment. I welcome his re-stating our party's opposition to the principle of retrospection and his saying that we will table a new clause on Report, but actions speak louder than words, and the clearest message that our party could send tonight to our constituents is to vote against this example of retrospective legislation. It is very unfair and as has been pointed out, it will be particularly damaging to those who booked their flights furthest in advance, who tend to be the weakest members of our society financially. It is time for us to give them some relief from this ghastly Government, so I hope that Members will support me in the Lobby this evening.

Vincent Cable: I beg to move amendment No. 13, page 8, line 29, at end add—
	'(7) This section shall come into force on a day which the Treasury may by Order appoint.
	(8) No order may be made under subsection (7) unless the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact of air passenger duty on the objective of reducing carbon emissions, and including an analysis of the comparative effectiveness in meeting that objective of the taxation of air passengers, on the one hand, and of aircraft according to their emissions levels, on the other.'.
	In the debate that we have just had on retrospectivity, the discussion strayed over into the environmental aspects of the tax, so some of the points that we are about to deal with have been covered already. I do not want to duplicate them, but this amendment would provide a mechanism obliging the Government to look more carefully at how environmental differentiation can be introduced into the taxation of the aviation industry.
	In his reply to the previous debate, the Financial Secretary sought to justify the Government's proposals in environmental terms, and I think that he said that the air passenger duty was introduced in 1994. I have not checked on that year's Budget speech, but I should be very surprised if the word "environment" passed the then Chancellor's lips. It was an era when politicians who thought at all about the climate thought about global cooling rather than warming, so the eloquent argument about carbon emissions is something that we have discovered in retrospect.

Vincent Cable: The right hon. Gentleman has the advantage over me, because he has had the chance to read the consultation paper carefully. I am sure what he says is true and that when I study the document that conclusion will emerge.
	Is there a better way of taxing the aviation industry that captures more effectively the environmental impact? If we were starting from scratch and did not have to worry about legal constraints, the obvious thing would be to tax the fuel. That could be done on domestic flights, although they are only a small percentage of the total, but it would be difficult to do internationally, partly for treaty reasons and partly because airlines would simply hop from one low-fuel jurisdiction to another and fill up where the duty was lowest. There would thus be no point in pursuing that theoretically attractive option.
	We suggest a simple mechanism, whereby the tax is applied in relation to the emissions produced by different types of aircraft. The model is the environmental differentiation in vehicle excise duty; different categories of vehicle are classified according to their carbon dioxide emissions and aircraft could be similarly banded. It would be a one-off tax at the point of departure, not at all complicated and probably simpler to administer than the present system. Because it would be a tax on departure and related to the CO2 emissions of a particular type of aircraft it would implicitly discriminate against short-haul flights. Paying the same duty whether the flight is to Edinburgh or Australia is not environmentally desirable because there are genuine alternatives to short-haul flights. There are no easier forms of public transport to Australia, but it is possible to switch to rail to travel to Edinburgh, Newcastle or even Cornwall, so a form of duty related to emissions makes more sense if it discriminates against short-haul flights. Environmentalists argue, too, that the greatest CO2 emissions are at take-off, when the booster impact of the engines is strongest.
	No doubt there are technical problems that would have to be resolved, but we tabled the amendment to invite the Government to consider that option and to make a judgment about how such a system might operate before they proceed further down the route of more increases in air passenger duty. We merely ask them to study the feasibility of the alternatives. They are embarking on consultation about different methods of taxing aviation. I am surprised that its reach is so narrow and that the Government are not willing to look at the possibilities we have suggested, which are driven by environmental considerations.

Paul Goodman: It is a pleasure to see you in the Chair, Mr. Illsley. May I encapsulate what I want to say on behalf of the official Opposition about the amendment by saying to the hon. Member for Twickenham (Dr. Cable) that if his amendment had proposed only an assessment, we would have been tempted to vote for it? However, it does not do only that, so for that reason, as I shall explain, we do not propose to support it. Indeed, I shall explain why we believe that it is irresponsible.
	Let me begin to consider the alternatives that the hon. Member for Twickenham referred to by making an assessment of air passenger duty itself. Perhaps the best way to start is to see what APD's most enthusiastic supporters, including the Financial Secretary, say about it. Apparently, APD is "not an environmental tax" and is not related to "a concern about emissions" or more efficient aircraft and "not related at all" to "more efficient use" of aircraft that are flying.
	Who said that? One might have thought that it would be the hon. Member for Twickenham, but it was, in fact, the Financial Secretary when he appeared before the Treasury Select Committee last year. He may have thought, in retrospect, that he was not clear enough, so he came back this year to remove any possible ambiguity. He said that APD was
	"a blunt instrument as far as the environment goes. It is not the best policy instrument to try to deal with the environmental impacts of aviation"
	and
	"not even the best tax instrument to deal with the effects of aviation".
	That is the unvarnished view of the Minister whose task it is to sell the doubling of this tax to the House tonight. As the hon. Member for Twickenham said, the Financial Secretary has placed a consultation document in the Library today, which relates to the industry's view that the way in which air passenger duty defines different classes of travel could send inappropriate signals and create market distortions.
	In general terms, the Financial Secretary was very plain in his view of APD, so I think that we should return the compliment. We agree with the green critique that he set out. Indeed, we could scarcely put it better ourselves and I do not think that the hon. Member for Twickenham could put it any better either. The main points are well rehearsed: APD is not linked directly to emissions; it does not provide any incentives to use more fuel-efficient aircraft, and so forth.
	The hon. Member for Twickenham referred to what my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said when he introduced APD. Indeed, my right hon. and learned Friend did not use the word "environment" at all. He said at the time, rather baldly, that air travel was "under-taxed" compared to other sectors of the economy. In short, APD is not a green tax, but an aviation tax.

Julia Goldsworthy: Is it not also true that the inequality that the consultation document is attempting to resolve takes us back to the point for which air passenger duty was created? As well as airlines like Eos today, back in 1984 we also had Concorde. Such airlines benefited from exactly the same differential impact.

John Gummer: I wonder whether I can help my hon. Friend. It is certainly my view that any assessment that was going to hold water on this issue would take some time, because the Treasury has done little work on this matter. It is a great sadness that the Treasury is so Brown and not green. An assessment will take a long time. That adds weight to my hon. Friend's argument—although I am in general sympathetic towards the Liberal amendment.

Paul Goodman: That is why I would be extremely pleased—as, doubtless, would the Liberals—if the Financial Secretary said tonight that, once the clause is passed, the Government will carry out an assessment into a replacement for APD. The Financial Secretary has never ruled that out. I am interested to know whether he will do so when he responds to the debate. We believe that there should be an assessment. What I find hard to understand is why the Liberals believe that there should be an assessment. They have already announced their policy on aviation tax. The document that sets out their so-called green tax switch, to which I will return in a moment, states that their policy is
	"to replace the existing airport passenger duty with an aircraft tax based on the emissions of each aircraft".
	The hon. Member for Twickenham went into that. That is a perfectly sensible option. It is in our own policy document. But, for the Liberals, it is not an option; it is a firm policy commitment, as they know. A question naturally follows: if they want to replace APD with a new aircraft tax, why have they not tabled an amendment that proposes exactly that? Why do they need the Treasury to assess their own policy?  [ Interruption. ] They may say that their proposals involve a tax increase and that one cannot table an amendment that is in order if it involves a tax increase. In answer to that, I would ask: why is it that last year—the hon. Member for Wolverhampton, South-West (Rob Marris) and I are veterans of these debates—they did exactly that in relation to vehicle excise duty?

Paul Goodman: I would be grateful to the hon. Lady if she would confirm that that is exactly what happened.

Paul Goodman: But the hon. Lady did do that last year in relation to vehicle excise duty.

John Gummer: I would like to be able to support the content of the Liberal amendment, because the Financial Secretary to the Treasury has been disingenuous in the way in which he has tried to defend the tax that we are discussing. The two arguments that he has used are flawed and damaging to the environment. His first argument was that air passenger duty is an environmental tax—not a very good or effective one, and not one that he would have chosen if there were anything else around, but the only thing that he could scrabble together at the time. That, roughly speaking, is his view of the tax.
	The Minister went on to say that it was not a bad tax in retrospective terms, and that he would fight very hard in the courts to make sure that nobody won a case against him. The problem for me is simple. We will need regulation and a shift—not an increase, but a shift—in taxation from taxes on the family and taxes on business to taxes on pollution. However, if the country believes that that is not for the purpose of the environment, but is merely another sleight of hand, another stealth tax in order to gather money for the Treasury, that undermines our ability to take the nation with us in the tough measures that we will have to adopt.
	I was disappointed by the Minister's reply to the last debate, because although it was ruled out of order to talk about the environment, he did so. He mentioned that the tax was environmentally healthy. He also suggested that some minuscule amount of emissions might or might not be saved on some technical arrangement that the Treasury had gone into. Everybody knows that this is a tax to raise money.
	I have a slight disagreement with the hon. Member for Twickenham (Dr. Cable), which I know he will not mind. When my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) introduced the landfill tax, he made it clear that that was an environmental tax. Even though my right hon. and noble Friend the then Prime Minister allowed me to raise the rules for the defence of the sea because climate change was a real issue—and that was in the early 1980s—back in 1994, the emissions from aircraft were significant only to a very few. There were not many aircraft, the amount of emissions was not very great, and it paled into insignificance when compared with other things. The kind of nonsense that Ryanair peddles now was true then.
	What has happened since 1994 is that Ryanair and others have entered the market, there has been a huge increase in emissions, and those emissions are particularly great in the United Kingdom. If they continue at the present rate, they will use up all the reductions that we can make in the immediate future in other areas of carbon emission. Of course we must be very tough about emissions from aircraft. We know that that is not easy, because many of the people who have taken advantage of cheap flights have found that that hugely improves their quality of life. Any of us trying to deal with the issue knows how difficult it is.
	That is why the Minister has done the environmental movement a great disservice by pretending that this ineffective, money-raising tax has anything to do with the environment at all, and why he knows in his heart—that is why he is looking down—that it would have been credible only if he had introduced at the same time a measure resembling the amendment, and said clearly that he needed the money. Honesty is the best policy. Whereas my right hon. and learned Friend the Member for Rushcliffe was honest, I have to say, within the rules of the House, that I do not quite catch that in the present Administration.

David Heath: The right hon. Gentleman mentioned the growth in the low cost airlines. Is not one of the paradoxes of the whole issue that many of the low cost airlines are flying with relatively new planes fully laden, whereas many of the flag carriers are going round the world with virtually empty planes, causing a great deal more pollution per passenger? That is one of the problems with the Government's solution, and one of the things that our proposal would catch.

John Gummer: I agree with the hon. Gentleman. I was not attacking low-cost airlines; I was merely saying that because of low-cost airlines, there is a lot more flying. This tax is fundamentally a tax on the good airlines which have a proper number of people on their planes, because a full plane costs a lot more in tax than an empty plane.
	The idea that it does not matter that the Government are taxing airlines retrospectively, because airlines can pay the tax out of their profits, is the most peculiar piece of logic that I have ever heard. The truth is that the Government are taxing the airlines, which will either pay the tax themselves or pass it on. The fault is the Government's, not anybody else's. My objection is that what the Government are doing with taxation is not helpful when it comes to emissions or green taxation generally.
	There are, for example, 39 flights a day to Manchester from London, which is not a sensible way of using our slots, but there are also aeroplanes that can fly across the country and provide a real service to places such as, for example, Cornwall. Because such flights involve turboprops there are fewer emissions, and the flights can be very full. I am not opposed to examining that particular proposal, although it needs to be part of a whole package. We need to talk about slots. I understand that it is often cheaper to have a short-haul slot than a long-haul slot, which cannot be sensible.
	There is a whole range of such issues that must be looked at. I have admiration for the Financial Secretary, who is a decent man. I am not making a party political attack, but how has he allied himself with the Treasury, which has not done any of that work, which has not produced a reasonable basis for the tax and which has not bothered? The Treasury has fiddled about with a tax that it knows does not work and pretended that the tax is environmental.
	That is why I am interested in the amendment—but I must tell the Liberals that nothing would get me to vote for Liberal taxation proposals. I have got a very long memory, and I remember Liberals who supported tax on domestic fuel until there was a by-election, when they changed the policy overnight in order to win that by-election. The Liberals and taxation are about taxes that people do not think will hurt—the moment that taxes hurt, the Liberals get rid of them. The Liberal party is the party that no one can take seriously on the environment, because the Liberals resile from anything that is difficult. I would vote Labour a dozen times before ever voting Liberal, because at least you know what you are getting. As a constituent of mine said on the doorstep, "The choice in this village is between the Conservatives and the Liberals, and you never know where you are with the Liberals. If God had been a Liberal, we would have had the 10 suggestions." Homespun humour gets to the heart of the issue, so do not come telling us about your taxation policies, Liberals, because we know what they are—never do the tough thing; always talk the sweet talk.
	That is why I think that my hon. Friend the Member for Wycombe (Mr. Goodman) has done the right thing, which is to say that we will vote for this tax because it is a tax to raise money, and tell the Government that we would like two things from them. Either they accept the sense of the Liberal amendment and say that they will produce some properly audited, sensible proposals so we can all see the figures and make an environmental decision in the future—or, if that is not possible, that the Government themselves will say that there needs to be a different way of looking at taxation on aircraft that is much more closely associated with the damage that aircraft do to the environment.
	Finally, I am usually able to say such things on the side of the Government with a clear conscience, but I remember that our Prime Minister changed his view even on this matter from the morning to the evening, when he was pressed on the perfectly reasonable question why he felt in the circumstances of today that to take two holidays a year in the Caribbean and none at Chequers was reasonable. Between the morning and the evening, he moved from pooh-poohing aircraft taxation to coming forward with a nicely chiselled but largely irrelevant proposal.
	We need to be frank about this measure—it is intended to raise money—but we need also to tell the Government that they have done a serious disservice to the environmental movement by pressing it in this form, and urge them to make up for the damage that they have done.

Rob Marris: I agree with quite a lot of what the hon. Member for Wycombe (Mr. Goodman) said in response to amendment No. 13, which I shall oppose. I do not wish the increase in air passenger duty to be delayed, and I do not think that it is right to put in statute a demand for an "assessment". We need aviation taxes to raise revenue and to cover the externalities of air travel. We also need additional, not replacement, taxes to change behaviour. If, as I hope, behaviour changes as a result of these taxes, we will have had a positive result in terms of that desired outcome and the Government will not have to worry about revenues from green taxes, in this case on aviation, dropping. The central paradox, if not contradiction, in the Liberal Democrats' position on green taxes is that they do not really want behaviour to change, because that would mean that tax revenue would drop and they would have an even bigger hole in their budget.
	Nevertheless, I have a lot of sympathy with what the hon. Member for Twickenham (Dr. Cable) said about aircraft movements. In 1994, when the tax was first introduced, it had a small aircraft-related element, in that aircraft weighing less than 10 tonnes were exempt. That was to do with flights of small planes from Scottish islands, Cornwall and so on. The Liberal Democrats have a point in saying that when we try to change behaviour we should tax the right thing, which is aircraft movement rather than people. As the hon. Member for Twickenham said—this had not occurred to me and I thank him for raising it—his proposals on taxing aircraft movement rather than passengers would have a differential effect domestically as against internationally, because, as it would be calculated per takeoff, proportionately speaking it would hit harder domestically. He is right to say that the substitution effect is possible domestically but not for long-distance international flights, although it is possible in the case of other countries in western Europe, where one can take the train, as I do.
	I urge my hon. Friend the Financial Secretary to take on board the comments that have been made about the additional green taxes on aviation that I would like in order to change behaviour, particularly domestic behaviour. Let me give an example. We could all cite the difficulties that we have in encouraging the green agenda given the cost of travel in the United Kingdom. One of my nieces, who lives in Sheffield, has just flown to Thailand. When I asked her whether she was going from Gatwick or Heathrow, she said that she was travelling from Sheffield to Manchester, flying from Manchester to London, and then flying on to Thailand on a different flight. That is not a great green message for the next generation, but she is a young woman of modest means, to say the least, and that was the cheaper option. Additional green taxes might change things in some way in the case of domestic flights.

Eric Illsley: Order. Before I call the hon. Member for Twickenham (Dr. Cable) to respond, I inform the House that I do not intend to have a clause stand part debate on clause 12, given the length of time that we have spent debating it so far.

Vincent Cable: I should like briefly to respond to some of the points raised in the debate. The hon. Member for Wycombe (Mr. Goodman) is normally quite thoughtful, but he seemed to feel that he had to make some terribly tribal points tonight in order to wriggle out of his desperate embarrassment at agreeing with the Liberal Democrats. We have a proposal but, as far as I am aware, his party does not have anything at all apart from a general commitment to raising revenue from the aviation sector. I think that his points were slightly unworthy of him.
	I should also like to correct something for the record. We have submitted a balanced and tax-neutral alternative budget to the Institute for Fiscal Studies. I do not think that the hon. Gentleman's colleagues got that far. We suggested a series of measures that were environmentally friendly and also fairer and more redistributive. The IFS acknowledged that our sums added up. The hon. Gentleman might not like the policies, but the sums certainly balanced. We acknowledge that, following the introduction of the Budget, which included at least some of the measures that we recommended, such as cutting the basic rate of income tax, we shall have to redo the numbers. We shall do that, and take into account the environmental tax implications.
	The hon. Gentleman made a criticism that I did not fully understand. He started by asking why, since we had a workable alternative, we wanted to carry out a study on it. He finished by saying that we did not have a workable alternative, however, so I am not quite sure where his argument was leading. There are two reasons why we suggested that an evaluation was necessary. One is that any sensible party in any Government should do impact assessments even if it thinks that it has got the basic formula right. The present Government have structured that in, but not enough.
	Secondly, we are trying to find a mechanism to reach common ground with the Government. We know that they are not in the same position as us, and that they have embarked on a consultation exercise. It would be helpful if they widened out that exercise; I do not see a problem with that. In his response, the Minister made what might well have been a valid point about the legal difficulties involved. We have looked at this, and we were persuaded that there would not be a problem, but perhaps there would. That is all the more reason for widening his consultation to try to answer that specific question.
	As always, the hon. Member for Wolverhampton, South-West (Rob Marris) made some good points, some rather quirky points and—by his standards—some rather silly ones. The argument that he and some of his colleagues keep repeating that revenue-raising environmental taxes and behaviour-changing measures are fundamentally incompatible is simply wrong. Environmental taxation produces both effects, and if he wants some proof, he should look at the history of his Government's climate change levy, which has raised more revenue and changed behaviour. That is a good model, on which our policy—and, I am sure, that of others—is based. As he normally makes very good contributions, I hope that he will not repeat that not very worthy point.
	The right hon. Member for Suffolk, Coastal (Mr. Gummer), with his vast experience, started off with some good and helpful criticisms, which I took in good part. He then felt that he had to embark on a bit of tribalism too, which no doubt reflects what is happening on the doorsteps in his area at the moment. He told a good joke, however, and I will repeat it at my party's fundraising dinner.
	The Minister made some good, constructive criticisms. I do not intend to press the amendment to a vote, as some useful points have been made. I accept that there is an argument against delay, and that is one of the reasons why we do not intend to lose the principle behind the amendment, but will return to it in a different form that captures that criticism properly. As the Minister is opening his mind to a consultation and a review of how the tax would work, I hope that he will accept that he should look more broadly and in the direction that we have indicated. I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.
	 Clause 12 ordered to stand part of the Bill.

Julia Goldsworthy: I beg to move amendment No. 19, in clause 81, page 56, line 7, leave out 'thinks' and insert 'has reasonable grounds for believing'.
	I should like to incorporate the few remarks that I have to make in the clause stand part debate with my comments on the amendment, tabled by me and the hon. Member for Twickenham (Dr. Cable). Clauses 81 to 84 amend the Police and Criminal Evidence Act 1984, and I want to place it on the record that it was argued forcefully from our Benches at the time that powers should be extended beyond the police to other arresting authorities, including Customs and Excise. In relation to the 1984 Act, the Bill seeks to reflect the fact that the Inland Revenue and Customs and Excise have since merged. Having said that, we need to be clear about what powers HMRC will take on, and the context in which they will be used. The need to amend the Act must not result in some kind of mission creep in relation to its scope.
	Amendment No. 19 flags up an issue that I will flag up again in clause 96 and schedule 24, which deal with penalties issued by HMRC for errors. The issue relates to the burden of proof for action that can be taken depending on what an HMRC officer "thinks". I do not want to query the substance of the clause, but how we deal with the issue of objectivity. There is a range of options. We could take it that an officer just "deems" something to be the case, whereas the use of the word "thinks" implies some element of objectivity and some grounds. There should, however, be some burden of proof, whereby the officer
	"has reasonable grounds for believing"
	that the previous section should not apply. If we wanted total objectivity, that reference could be taken out altogether, and the clause would read, "if an application under Schedule 1 would not succeed". I would not want to push it that far; I am simply saying that there should be "reasonable grounds for believing" that to be the case. That issue becomes even more important when we deal with penalties for errors.
	I hope that the Minister will respond favourably, as I will raise those issues later, and what he says may have a bearing on the amendments that we choose to table. I hope he will give positive consideration to the need for more objectivity in the language. Although it could be argued that the present wording is easier to understand, there are other more complex drafting issues. It must be clear that there is that element of objectivity.

John Healey: As I have just explained, an officer has a duty to think reasonably, because otherwise his decision would automatically be unlawful under administrative law. I respect the hon. Gentleman's experience of criminal justice legislation, and the Government have given him plenty of opportunity to accumulate it in recent years when he has spoken on such legislation from the Front Bench. He may be interested to learn, however, that the word "thinks" is used over 3,000 times on the statute book, and I believe that its use here is appropriate.
	I can tell the hon. Lady that we have received no representations suggesting that the word "think" in clauses 81 and 82 should be removed or amended since the Bill was published at the end of March—apart, of course from her amendments.
	The hon. Lady mentioned clause 96. She may be aware that representative bodies and tax professionals have expressed reservations to us about the phrase "HMRC think" in respect of the clause and the schedule on civil penalties, but the underlying concern raised on those provisions is entirely separate from the clauses on criminal investigations. I will not go into the distinction here. I am sure that we will have a chance to do so in Committee, but in recognition of the anxiety that has been expressed and in response to those representations that have been made, I intend to table an amendment in the Public Bill Committee to clause 96 and schedule 24 on civil penalties. However, it would be inappropriate to change the word "thinks" in clause 81, as her amendment suggests. I therefore hope that she will not press the amendment.

Mark Francois: As the Minister mentioned it, may I say quickly that Conservative Members welcome his admission that there has been concern on clause 96. We have received representations on the matter and we look forward to seeing his amendment in due course.
	On amendment No. 2, any extension of the powers of the state relative to the individual is a matter that should rightly provoke parliamentary scrutiny, particularly, as in this instance, where it potentially involves powers of arrest. Given that, my purpose this evening is to seek some specific assurances from the Minister about how the proposed new powers will operate in practice and some guarantees—I use that word deliberately—that they will not be used arbitrarily to put undue pressure on legitimate taxpayers.
	The background to all this is the merger of the Inland Revenue and Customs and Excise, which was brought about by the Commissioners for Revenue and Customs Act 2005, which received Royal Assent on 7 April 2005. Before the merger which created Her Majesty's Revenue and Customs, the two heritage organisations had different roles and different powers accordingly. HM Customs and Excise has historically had relatively strong powers, including powers of arrest and seizure, which evolved from its role in fighting smugglers and more latterly drug traffickers. Before the merger, those powers were based on the Police and Criminal Evidence Act 1984, or PACE as it is more generally referred to, and specifically section 114, which conferred specialist powers on Customs and Excise officers to help to fight crime.
	In contrast, the Inland Revenue was equipped with more restricted powers designed predominantly to help it to combat so-called white collar crime in areas such as financial services and the deliberate evasion of tax. Importantly, however, Inland Revenue officers did not usually have any powers of actual arrest and needed to be accompanied by a police officer if and when that became necessary.
	In the spring of 2006, the Treasury initiated a consultation process on how the powers of the two heritage organisations might effectively be combined. There have now, in fairness, been three separate consultation documents relating to that process, including a second technical consultation in August 2006 and a third revised consultation in January this year. The consultation included a draft copy of the statutory instrument that the Government intend to use to initiate the powers contained in part 6 of the Bill. Therefore, we accept that the change has not come out of the blue and that the Treasury has received a considerable number of responses that have led, at least in part, to the drafting of part 6.
	Given that, we are not opposed in principle to combined powers for HMRC. Our concern is the extent of such powers and how they are likely to be employed in practice. The Treasury has apparently sought to reassure the professional bodies that those powers, including that of arrest, will be used sparingly; but, importantly, few such guarantees are stated in the Bill. My party is by no means alone in being concerned. The Chartered Institute of Taxation, in a consultation response of 16 February this year, stated:
	"We continue to believe that, as a matter of principle,. HMRC should have civil powers to administer tax, whereas criminal matters should be for the police. We do not see any conflict between this and the need to ensure appropriate powers are available to tackle MTIC fraud and other attempts to steal from the taxpayer."
	It went on that if HMRC is given the powers,
	"the issue becomes one of ensuring those powers are used only by those who need them, and are subject to proper control."

David Heath: I have a great deal of sympathy with what the hon. Gentleman is saying: there is a need to identify which officers have arrestable powers. I am, however, concerned about amendment No. 20. It appears to preclude a customs officer at a port of entry having powers of arrest unless he is a member of the criminal investigations directorate; otherwise, he would need to be with a person in the office of constable to effect an arrest. That cannot be what the hon. Gentleman intends.

Mark Francois: I take on board the hon. Gentleman's point, but it would be up to HMRC to decide where to deploy its CID officers. Also, there are usually police officers available at most ports.
	In a more recent note produced after the publication of the Bill, the Chartered Institute of Taxation argued:
	"We have had assurances that the use of the powers will be restricted to a small cadre of people, properly controlled and trained. There does not seem to be anything to give effect to that promise in the legislation—why not? It would be preferable to have such powers included in the legislation, rather introduced by 'administrative procedures'."
	The Institute of Chartered Accountants in England and Wales, in its parliamentary briefing of 24 April, said:
	"It is vital that HMRC make publicly clear the circumstances in which the powers of arrest will be used...In order for Parliament to properly debate these clauses, the promised statement of practice should be made available to coincide with the debate."
	It added:
	"Fundamentally, we question whether HMRC ought to have criminal investigation powers at all. We think that serious organised tax crime ought to be dealt with by the Serious Organised Crime Agency (SOCA) in the same way as any other organised crime."
	The Law Society reflected those concerns in its parliamentary briefing of 20 April when it said:
	"HMRC have made significant efforts to separate out functions so that criminal investigation activity is not confused with civil investigation activity and separate personnel are involved...There is no statutory basis, however, for this separation of functions: it may be appropriate to consider whether there should be a separation."
	It was also concerned that
	"In the adoption of PACE under the statutory instrument no particular grade of officer is specified to exercise the powers...There is no statutory basis for the separation of criminal from civil powers within HMRC...HMRC have taken these issues seriously but it may be appropriate for a legislative framework to exist as well."
	The Professional Contractors Group, which represents many small businesses including in the IT sector, stated:
	"The culture of tax inspectors is becoming increasingly aggressive and destructive, and less concerned with the law."
	With regard to the proposed criminal powers, the PCG states:
	"PCG calls for clarification over when new powers will apply, a guarantee that they will never be used as part of routine compliance work and for this guarantee to be enshrined in statute. This separation must be as solid as possible and not liable to be eroded either by the misapplication of powers by inspectors or by any future administrative reorganisation within HMRC."
	PricewaterhouseCoopers has argued—in a response to HMRC's consultation of 14 February 2007, given by its partners John Whiting and Tom Cawdron—that
	"the use of powers must be separate from procedures for civil investigations...Criminal gangs allegedly committing MTIC fraud and tax credit fraud on a vast scale need to be tackled with an appropriate degree of tax specialist support. We believe that it is a mistake for tax officials (using the word 'tax' in the widest sense) who may return to a normal tax environment at the end of their spell of duty in RCPO to investigate such organised crime."
	Given all those serious concerns, can the Minister now provide Parliament with some specific on-the-record assurances about how these powers will be exercised in practice? First, who can exercise the powers and how limited will their exercise be within HMRC? Our amendment No. 20 argues that the ability to exercise them should be confined to HMRC's criminal investigations directorate, which specialises in fighting fraud and criminal activity but does not ordinarily deal with day-to-day tax affairs. That might help reassure taxpayers, including businesses, that HMRC will not use the threat of powers of arrest as leverage in ordinary tax disputes.
	The regulatory impact assessment that accompanied these proposals, under the heading "Training given to HMRC officers", states:
	"The structure of HMRC with a separate Criminal Investigations Directorate, ensures the same officers do not deal with both criminal and non-criminal investigations. Officers responsible for criminal investigations will receive all the relevant training and will not have any other duties such as carrying out routine compliance work".
	However, the RIA is not part of the Bill, which in clause 81(9)(2)(a) states:
	"A certificate of the Commissioners that an officer of Revenue and Customs had authority under subsection 2(e) to exercise a power or function conferred by a provision of this Act shall be conclusive evidence of that fact."
	Given that apparent dichotomy, can the Minister assure the Committee this evening that the powers in part 6 of the Bill will be exercised only by officers of HMRC's criminal investigations directorate, and not by other, wider elements of the organisation, as well?
	Secondly, in what circumstances will the powers be used? It is important to establish that such powers should be used only to fight suspected fraud or other related crime, and not as leverage in ordinary day-to-day tax disputes. What is important is not just the power of arrest but the threat of its use. It would be quite wrong for HMRC officers—a number of whom are now incentivised regarding the annual revenue that they are targeted to bring in—to use the threat of arrest by HMRC as leverage in a tax negotiation in which there is no real suspicion of fraud or other criminality. What assurances can the Minister give the Committee that that will not be allowed to happen, and that potentially overzealous tax inspectors will be kept in check if these powers are granted?
	Let us consider some simple instances. Can the Minister assure us that an individual who makes a genuine mistake on their annual tax return, even if it is in their favour, will not be threatened with arrest? Similarly, can he assure us that a small business that is experiencing genuine cash flow problems, and which is therefore having difficulty meeting its tax payments, will not have its partners or directors threatened with arrest as a result? We also presume that someone who is in dispute with HMRC over an attempt to recover an alleged tax credits overpayment—there were a third of a million such people last year—will not be threatened with arrest in any circumstances, save where there are reasonable grounds to suspect that they have been involved in an organised attempt to defraud the system? Conversely and for the record, we do expect such powers to be used in fighting organised fraud such as MTIC fraud, which is costing the UK taxpayer billions of pounds a year.
	Thirdly, when will the specific guidance that relates to the operation of the powers be issued. The RIA, under the heading "Communication of the changes", states:
	"HMRC has undertaken to publish material setting out information on which officers are entitled to use criminal investigation powers, how that work is organised in HMRC and how the powers are organised."
	As I have already stated, the draft order to implement part 6 of the Bill has been published, but when I checked with both the Library and HMRC this afternoon, the specific guidance about the implementation of the powers in practice, as opposed to just the powers themselves, had still not been published. It would, obviously, have been very helpful to have that information before the House before today's debate.
	In addition, it should be borne in mind that even when we do have such information, it will still only be in the form of guidance, or some form of code of practice as—in fairness—has been suggested by the Liberal Democrats in amendment No. 18, and so will not be on the face of the Bill.
	Similarly, the RIA, under the heading "Implementation and delivery plan", also states:
	"The changes being made come into force according to an order to be made by the Treasury. The order will not be made until the training has been rolled out appropriately."
	The Treasury has already published the draft order as part of the consultation, but without a potential implementation date. So assuming for a moment that the Bill receives Royal Assent before the summer recess, when is the order intended to be made and is the Treasury confident that all of the relevant training will have been completed by that time?
	In summary, we can understand why the Government might want to do this, following on from the HMRC merger. We accept that they have carried out a consultation exercise in advance of seeking to codify these combined powers in part 6 of the Bill. Nevertheless, we remain concerned by the extent of these powers and, specifically, how they might be exercised in practice. The concern spreads wider than just the Opposition. It includes the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, the Law Society, the Professional Contractors Group and respected members of the accounting profession, including those from PricewaterhouseCoopers.
	Parliament must be reassured that the powers will not be used arbitrarily and that HMRC officials will not use them or threaten to use them simply as leverage in tax negotiations. We have already seen a significant hardening of HMRC's attitude in respect of the adjudication of tax credit overpayments and we are concerned that such a hardening in other areas could take place once the new powers have been granted to the combined organisation.
	To this extent, we have proposed two amendments to limit the exercise of such powers to a finite number of specially trained officers—amendment No. 2—or to those working specifically in the criminal investigator's directorate at HMRC, which is amendment No. 20. I shall listen carefully to the Minister's reply before deciding which, if either, of the amendments to press to the vote.

Julia Goldsworthy: The full RIA outlines the necessary balance to be struck between meeting HMRC's needs and making the provisions consistent with PACE 1984, and safeguarding citizens. Amendments Nos. 2 and 20 make much sense, although amendment No. 2 makes more sense than amendment No. 20. If one is pressed to a Division, we would be more inclined to support the former.
	Amendment No. 2 makes sense because it outlines clear requirements for training, supervision and numbers. I would be interested to know where the hon. Member for Rayleigh (Mr. Francois) got the number 500 from, but it can be amended by order if it is not right, and that makes sense. It is also sensible to ensure that HMRC has to report back on the issue in its annual report. We need change, because PACE 1984 relies only on Customs and Excise and we do now have a merged organisation.
	Amendment No. 18 reflects our concerns that we are debating these powers without being clear about how they will be exercised, the circumstances in which they will be exercised and who will exercise them.
	With any other Bill, the Government would have other opportunities—such as before it went to the Lords, for instance—to lay the code before the House, but the fact that this is the Finance Bill means that we will not have another chance to debate the matter after tonight. Moreover, we are holding the debate blind because we do not have the code, and that is why the amendment would ensure proper time for appropriate parliamentary scrutiny of this matter.
	At the very least, I hope that the Minister will be able to assure the House that appropriate parliamentary time will be set aside to debate the code, when the Treasury makes it available. Although amendment No. 2 is better than No. 20, we cannot support it because, in reality, it is possible that only one officer will be present when an arrest has to be made. PACE was supposed to make sure that an arresting officer would be available when an arrest had to be made, so I hope that the Minister will respond to the proposition in our amendment No. 18.

John Healey: I hope that my response will give the reassurances that the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for Rayleigh (Mr. Francois) are looking for. The new powers in clause 81 and those that follow it are very important, and I hope that what I say will expedite the business on those further clauses.
	The Bill is designed to improve HMRC's ability to respond to serious criminal attacks on the UK's tax and tax credit systems. HMRC's criminal investigation powers will be based on the modern standard already set by Parliament for other agencies facing similar threats—that is, the Police and Criminal Evidence Act 1984. That Act is well understood by courts, lawyers and law enforcement agencies. It has been in force for more than 20 years, and the former Lord Chief Justice, Lord Wolff, has said that it is central to the working of the criminal justice system. He said that it reflects Parliament's intention as to what should be the balance between the necessary protection of the rights of the individual citizen and the right of the public as a whole that those who commit crimes should be convicted and then punished.
	That is precisely what the 1984 Act's incorporation for HMRC is designed to do. As the hon. Member for Rayleigh said, it follows the merger of Inland Revenue and Customs and Revenue in 2005, which is when my right hon. Friend the Paymaster General launched the major review of powers. That review involved wide consultation about the powers and deterrents available to HMRC, and about the safeguards available to taxpayers.
	Two elements of this year's Finance Bill cover criminal investigations and civil penalties that emerge from that review of powers. The proposals are based on extensive consultation that included discussion with the review's consultative committee of independent experts. In addition, there were three public consultation exercises, and meetings with representative bodies and legal experts from across the UK.
	There was a time when the tax authority was a less obvious target for organised criminal attacks, but the threat of organised financial crime is now considerable and serious in both the public and private sectors. The MTIC fraud mentioned by the hon. Member for Rayleigh, and the organised criminal attack on the tax credit system that included the theft of thousands of identities from unsuspecting employees, are just two examples of what can happen. Staff at HMRC are uncovering serious criminal activity across a range of the agency's duties, and the globalisation of trade and financial services is enabling criminals to scale up the amounts involved in complex business frauds.
	As a result, HMRC must have modern and effective powers to respond to the changing nature of the criminal threat. However, many of the powers inherited from the Inland Revenue and from Customs and Excise are no longer suited to that purpose. Furthermore, misalignment between the powers leads to confusion; for example, under existing legislation, an HMRC team investigating a case of fraud that covered direct and indirect tax would need two separate warrants to search premises, two separate teams to undertake the search and, if arrests were made, the suspect might have to be arrested twice—once by an HMRC officer for the indirect tax fraud and once by the police. Clearly, that is nonsense and undermines the advantages of the alignment and modernisation that Parliament approved in the merger to create a single UK tax authority.
	The majority of responses to our consultation recognised the importance of consistent powers for all tax fraud investigated by HMRC and supported adoption of the relevant parts of PACE as a sensible way to achieve that. The Law Society of England and Wales supported the adoption of PACE on the principle that
	"the powers should so far as possible be consistent with powers available to other agencies dealing with criminal offences."
	The hon. Member for Falmouth and Camborne expressed concern about mission creep. Not all the PACE powers will be applicable to HMRC; indeed, the provisions we are debating would give HMRC access to only about one third of PACE. Powers not appropriate to the tax authority are not included; for example, PACE stop and search provisions and the powers to take fingerprints and to charge and bail suspects would not be available to HMRC. However, bringing HMRC criminal investigations into PACE would ensure that all the safeguards enshrined in that legislation are directly applied to those investigations. PACE codes of practice would apply to HMRC; they set out important safeguards, including that the powers of entry, search and seizure must be fully justified before use and that officers must consider less intrusive means before applying for search warrants.
	Some people have argued that the exercise represents a levelling up of old Customs powers to the Revenue. That is not the case. In some instances, the provisions would introduce higher thresholds and stronger safeguards; they also mean a narrowing rather than an extension of the number of HMRC officers who can exercise the powers. The power of arrest would be restricted to authorised officers with the necessary training, who needed to perform an arrest in the course of their duties. That will mean removing the power of arrest from about 18,000 ex-Customs officers who at present have the power but no operational need to use it.
	Some Members expressed concern that criminal and civil matters would get mixed up. I assure them that the law makes it clear that the powers we are considering can be used only where it is reasonable to suspect that a crime has been committed and only for the purposes of a criminal investigation into that crime. None of the powers can be used for civil matters. No HMRC officer is responsible for both civil and criminal inquiries. The only guidance not yet published by HMRC is on the detail of the training courses officers must complete before they are authorised to use the powers. As promised, the guidance will be published before any powers come into effect.
	Subsections (2B) and (2C) of amendment No. 2 seem to be intended to ensure that PACE powers are used only by HMRC officers who are properly trained and authorised. However, that objective is already ensured by the clause. Under subsection (8) and the draft regulations applying PACE to HMRC, which were published on 2 April, PACE powers and functions are available only to HMRC officers authorised by the commissioners. Under administrative law, the commissioners may delegate functions only to properly trained and supervised officers, and only officers who need to use those powers to carry out their duties will be authorised.
	The procedures for ensuring that the rules for authorising officers are applied correctly are subject to independent inspection by Her Majesty's inspectorate of constabulary. It is correct that none of the powers will be made available to officers of HMRC who carry out more routine duties such as checking tax returns. By restricting the powers to those officers within HMRC who have a direct business need, the number of officers with the power of arrest will be reduced from a current total of about 24,500 to 6,500—a reduction of less than a third and more than a quarter. Those 6,500 include 2,000 criminal investigators and about 4,500 officers working to protect the UK's borders, as mentioned by the hon. Member for Somerton and Frome (Mr. Heath). Those officers need the powers to carry out their duties.
	That brings us to subsections (2D) and (2E), which are designed to limit the number of HMRC officers able to use PACE powers to 500—a figure that could be varied by order. Frankly, that is a ridiculous proposal and a random number. HMRC currently has 1,500 officers trying to tackle MTIC fraud, about 500 of whom have access to criminal investigation powers. The amendment would mean that the 200 criminal investigation officers tackling tax credit frauds, another 160 officers working on complex business fraud, 500 combating smuggling and about 230 tackling criminal finance and money laundering would simply be prevented from exercising their duties. That would certainly apply without the constraint of the constant legal amendments required to do so. What is important for the Committee to note is that the powers are available only to trained officers who need them to carry out their duties, who work in the relevant sections of HMRC and whose work is properly supervised and inspected.
	As to the amendment's proposals covering the provision of information, the hon. Member for Rayleigh may be aware that PACE provisions already require statistics to be kept and published. HMRC will in future continue to meet the relevant standards set by PACE as applied to all law enforcement agencies and then exceed them by continuing to publish a much wider range of statistics than it does currently.
	Amendment No. 18, and the requirement to prepare codes of practice relating to the exercise of powers, is also unnecessary. PACE codes of practice have been approved by Parliament and are available to the public. Clause 81, as drafted, applies those codes directly to HMRC's criminal investigations.
	Finally, on amendment No. 20, the hon. Member for Somerton and Frome was again correct that it would restrict the exercise of PACE powers of arrest to officers currently and exclusively serving in the criminal investigation directorate. Although they require the power of arrest, it is also needed at the frontiers. It is obvious that officers at the frontier need to be able to arrest smugglers, where appropriate, as they are detected entering or leaving the UK. Officers carrying out that work are based in HMRC's detection directorate rather than its criminal investigation directorate.
	On that basis, I hope that the hon. Members for Rayleigh and for Falmouth and Camborne feel that they have had their reassurances and that the hon. Gentleman will not press any of his amendments. If he does, I shall have to ask my hon. Friends to resist them.

Julia Goldsworthy: Although we are covering quite a lot in this group of amendments, I shall try to be brief.
	I begin by referring the House to comments made on Second Reading by the hon. Member for Wolverhampton, South-West (Rob Marris), who is not in his place at the moment, about the need for a carrot as well as a stick in encouraging environmental behaviour. The amendments and the new clause relate to clauses 20 and 21. In the Budget, it was announced with a great fanfare that people who produce electricity on domestic property through microgeneration would be exempt from income tax and, furthermore, that that exemption would extend to the sale of renewable obligations certificates. That announcement included income tax as well as any capital gains tax that people might otherwise have been liable to pay.
	Paragraph 7.43 of the Red Book states:
	"as announced in the Pre-Budget report, Finance Bill 2007 will legislate so that, where an individual householder installs microgeneration technology in their home for the purpose of generating power for their personal use, any payment or credit they receive from the sale of surplus power is not subject to income tax".
	The Red Book goes on to explain the freedom from income tax and capital gains tax for ROCs.
	Those measures in the Budget were accompanied by another announcement in the Chancellor's speech of further investment in the low-carbon buildings programme and that grants for the installation of microgeneration technology will be increased by a another £6 million. That announcement was in response to the massive popularity of the scheme, which was demonstrated by events on 1 March 2007 when the domestic grant allocation went on the first day of the month. I see that you are looking at me somewhat quizzically, Sir Alan. That point relates to our amendment (a) to new clause 1, which I will explain in due course—I promise you that I shall be brief, Sir Alan. Rather than increasing capacity, those events led to the suspension of the low-carbon buildings scheme for April. To date, the scheme is still not up and running.
	Amendment (a) would introduce into new clause 1 a requirement on the Chancellor to consult Departments. We tabled the amendment because the low-carbon buildings programme and the extension of funding to it was such a mess. Perhaps the Treasury did not inform the Department of Trade and Industry that it was planning to make such a generous offer, even though the industry itself had asked for an extra £15 million to deal with the popularity of the scheme. Because the DTI was not informed, the programme has been suspended rather than extended, and capacity has been reduced as a result, because members of staff are being laid off as a result of the suspension.
	On the face of it, the provisions appear to fulfil the principle that the Chancellor outlined in his Budget speech, but there are significant limitations in terms of the qualifications placed on the exemption from income tax. Clause 20(1) says:
	"No liability to income tax arises in respect of income arising to an individual from the sale of electricity generated by a microgeneration system".
	Paragraph (a) says that it must be domestic microgeneration. That seems fair. However, paragraph (b) says that it must be the case that
	"the individual intends that the amount of electricity generated by it will not significantly exceed the amount of electricity consumed in those premises."
	The phrase about intention as to the amount of electricity generated crops up again in clause 21 in relation to obligation certificates. The exemption from income tax applies only if someone intends not to generate more electricity than is required.
	The point of the amendments is to ask the Minister why he thinks it necessary to include that qualification, given that the existing definition of "microgeneration" makes clear the limits of the income tax relief. Section 26 of the Climate Change and Sustainable Energy Act 2006 says that
	"'microgeneration' means the use for the generation of electricity or the production of heat of any plant".
	It then lists the sources of energy and technologies that must be used through microgeneration systems: biomass, biofuels, fuel cells, photovoltaics, water, wind, solar power, geothermals and combined heat and power systems. It also defines the capacity by a microgeneration system: 50 kW for the generation of electricity and 45 kW thermal for the production of heat. Given that, why is it necessary to introduce a further qualification whereby an individual installing a domestic microgeneration system has to intend that they are not going to exceed significantly the amount of electricity consumed?
	If it is blowing a gale in the middle of the night, does that mean that the energy production of someone with a wind turbine will significantly exceed their requirements and they will therefore be unable to extend their exemption from income tax to the electricity generated in that situation? Surely we should be encouraging people to maximise the capacity of their microgeneration systems so that we are not placing such great demands on the national network and on non-renewable energy sources. I do not understand why the Treasury thinks it necessary to introduce the qualification with regard to intention.
	There is a practical issue as regards how the exemption from income tax will be measured and achieved. I notice that the Red Book contains no projections of the cost to the Treasury of providing it. Friends of the Earth raised a concern that it does not understand how its achievement can be physically measured. It said that, if the exemption were part of a wider scheme, with a roll-out of smart meters, it would be easier to do something. The chief executive of Scottish Power said that the policy would be meaningless without a wider roll-out of smart meters. Does the Chief Secretary intend to make the policy more meaningful?
	We are worried that the policy constitutes spin over substance. Organisations such as Friends of the Earth would have liked a package of measures to encourage microgeneration, not to limit it in the way in which the Bill does. I am worried that, in the case of climate change, a token gesture is worse than doing nothing because it fools people into believing that action is being taken, when it is actually limited. We do not know whether the income tax exemption will cost the Treasury anything. That shows its small scale given the few people who will benefit from it.
	New clause 1 would provide for a package and extend the scheme to small-scale local energy generation. It would also create a sense of accountability by providing for the preparation of a report to show that the Government are consulting local authorities and other relevant bodies. We will support the new clause, which would provide for a wider approach.
	Amendment (a) to new clause 1 would allow for consultation to include other Departments. One would believe that that was a given in any Treasury consultation, but the experience of the low-carbon buildings programme and this year's fiasco suggests that it needs to be clearly set out to ensure that it happens.
	The amendments and the new clause propose comprehensive changes and signal a more strategic approach, which would significantly improve the scheme. I hope that they will help provide greater stability to schemes such as the low-carbon buildings programme and other cross-departmental work. They are reasonable proposals and I hope that the Chief Secretary will accept them.

Alan Simpson: I wanted to speak briefly to support new clause 1, which addresses Treasury reporting on energy efficiency matters and microgeneration. I tabled the same amendment last year and I want to make it clear that it has cross-party support, which was reflected in the Climate Change and Sustainable Energy Act 2006. That had the support of the whole House.
	The key weakness in our current approach to reporting is that there is a range of departmental responsibilities, involving the Department of Trade and Industry, the Department for Communities and Local Government and the Department for Environment, Food and Rural Affairs, but in each case, the policies hit a brick wall in the absence of a commitment from the Treasury to be part of the reporting mechanism about fiscal measures, which promote microgeneration and energy efficiency. That is a glaring gap in the coherence of our approach to climate change policies.
	In other parts of Europe, Finance Ministries have been at the heart of driving climate change programmes and commitment to the shift to microgeneration and renewable energy. They have done that by placing themselves at the centre of parliamentary and democratic accountability. Yet whenever the matter has been raised in the House, the Treasury has refused to accept the reporting responsibilities that it quite happily places on other Departments.
	There is a central point for the House to grasp: unless our climate change policies and the accountability for them are driven by the centre, we will not get the take-off points that will shift our economy into seriously promoting microgeneration, renewable energy and energy efficiency. That will not happen if there is a gap at the centre. I put it to the Treasury Ministers that it is not enough to give the lead in policy pronouncements, or to be first off the blocks with the press releases. They need to be first out of the frame when it comes to holding themselves to account in such a way that we could then expect other Departments to follow suit. I make a plea to them that this should not be done in a way that will divide the House along party lines. It can be achieved with cross-party consensus, and if we were to do that, the whole House and the whole country would welcome it.

Julia Goldsworthy: I think that it was the hon. Member for Wycombe (Mr. Goodman) who described the Chancellor as being in the driving seat when it comes to such measures, but unfortunately it seems that the Treasury is trying to look like it is putting the foot on the accelerator, while at the same time it is slamming its foot on the brakes. Unlike the present Chancellor, perhaps his successor will choose to grasp the issue more firmly.
	I am pleased to hear the Chief Secretary confirm that the low-carbon buildings programme allocation will begin in May, but today is 1 May and, as far as I know, the programme is still suspended. It is a matter of concern that it has been suspended for months and that we still do not have a firm date for its proper reinstatement. In the meantime, people whose job it is to increase the capacity of that programme face losing those jobs because that funding stream is not there.
	The clauses provide some clarity about liability for income tax and the fact that there will be an exemption, but I remain concerned about the sub-paragraphs to which the amendments that my hon. Friend the Member for Somerton and Frome (Mr. Heath) and I tabled refer. The matter remains obscure. I am still not clear what the Chief Secretary meant when he talked about the potential for commercial gain. Surely either we want to increase take-up of microgeneration or we do not. If there is an exemption from personal income tax, surely that deals with the commercial issue. If he is concerned about the issue of exceeding the amount of electricity that the household requires, surely that should be a reason to look again at the definition of microgeneration, rather than trying to deal with it as the Bill proposes, which does not seem clear. People who take up the scheme will not know when they have significantly exceeded the amount that they were intended to generate. To what extent is the measure supposed to apply?

Vincent Cable: I have been fortunate during my years as a Member of this House to have secured a good few Adjournment debates, and I invariably devote them to constituency issues. However, there is another legitimate role that they can perform, which is to raise a series of questions on a topical issue that is difficult to pursue through oral and written questions. I want to follow up a debate that I introduced on 7 February in response to the statement of the Attorney-General about the Serious Fraud Office decision not to pursue the al-Yamamah investigation.
	There have been several developments since then, which I wish to touch on: the March meeting of the committee of the Organisation for Economic Co-operation and Development working group on bribery and what emerged from that; revelations about the American reactions to the British Government decision; and the report this weekend of the Foreign Affairs Committee, which commented on the damage to Britain's reputation. I also wish to look forward to the phase 2 inquiry that the OECD committee will undertake, and to discuss how Britain has applied the OECD anti-bribery convention.
	This is a difficult issue, which cuts across several Departments—that of the Attorney-General and the Solicitor-General, the Department of Trade and Industry, the Foreign and Commonwealth Office, the Home Office, the Department for International Development, and, of course, that of the Prime Minister. The responsibilities of the Minister who is to reply to the debate cut across the Foreign Office and the DTI, which are both centrally involved. I have followed his remarks, and he has made some good, strong statements about the British Government's commitment to fighting corruption, notably in his speech in December to the United Nations convention against corruption. He said that fighting corruption was a key priority for the British Government.
	The first of the issues that I want to address is the OECD working group meeting in March. The starting point is that it is the body that oversees the implementation of the anti-corruption convention. There has been an enormous change in the past decade. Some years ago, I served in the Foreign Office and in multinational business, and back then there was an assumption that corruption was part of everyday life in business. That has radically changed since the introduction of legislation that effectively makes it a criminal offence to bribe a public official overseas.
	There are differing views about how Britain has performed in this respect. I have had a useful exchange of correspondence with the Minister's colleague, the Minister for the Middle East, which has brought out the two different aspects of Britain's role. The Minister for the Middle East has rightly argued that in many respects, British business has an admirable record. He has pointed out to me in correspondence that Britain is sixth on the Transparency International index—the so-called bribe-payers' index. Put another way, Britain is second among the G7, just behind Canada. The United States is ninth in the index, Japan is 11th, France is 15th, and Italy is 20th. That reflects well on the ethics of British business. However, I was able to quote to the Minister for the Middle East the comments of the chairman of the working group, Mark Pieth, after the 2005 review; he singled out Britain, Japan and Italy as below standard in the implementation of the convention.
	Unfortunately, this whole argument has become somewhat personalised around Mr. Pieth. The Minister for the Middle East said in his letter to me—it was a public exchange, so I am sure that he will not mind my quoting it—that
	"Professor Pieth's public comments were—as they often are—made in his personal capacity rather than as a reflection of the views of the Working Group."
	However, the working group is quite explicit in its criticisms. It noted after the 2005 inquiry that
	"it is surprising that no company or individual has been indicted or tried for the offence of bribing a foreign public official since the ratification of the Convention by the UK".
	When the working group met last month, it introduced its comments on the United Kingdom in the following terms:
	"At its March 2007 meeting, the OECD Working Group...reaffirmed its serious concerns about the United Kingdom's discontinuation of the BAE Al Yamamah investigation and outlined continued shortcomings in UK Anti-Bribery legislation. It urged the UK to remedy these shortcomings as quickly as possible and decided to conduct a further examination of the UK's efforts to fight bribery."
	The personalisation spilled over, as the Minister knows, into a leading newspaper article last week, in which it was alleged that the British Government had sought to remove Mr. Pieth and had attacked the reputation of the secretary-general of the OECD. I was pleased that a Minister was able to write in very forthright terms dismissing these allegations; I am sure that that is absolutely appropriate. In order to round off this point, will the Minister present make it absolutely clear that the Government have complete confidence in the OECD working group and in its chair, as a necessary background to the inquiry that is due to take place in the next year?
	The second issue is the reaction of the United States, which has always taken the lead on this issue since the introduction in the mid-1970s of its own foreign corrupt practices legislation. Under President Clinton, the American Administration took the lead in trying to create a multilateral agreement—probably primarily to protect American manufacturers and to create a level playing field. The Americans have apparently been leading criticism of the UK within the OECD working party. It was revealed last week by the  Financial Times that a formal complaint, albeit an oral one, had been made in January to the Foreign Office about the termination of the Serious Fraud Office inquiry. If that is correct—I have not heard it denied—can the Minister confirm that the Americans did protest in that way? It is important to be clear on that point. Perhaps the Minister could say how significant that was. For all I know, the Americans may have protested to the British Government about numerous issues over the years, or about very few. Perhaps he could say whether this was seen as a serious gesture by the United States.
	The other development affecting the United States emerged in response to a question that I put to the Solicitor-General on 1 March. I asked him whether meetings had taken place in the past 12 months between the SFO and representatives of the US Department of Justice concerning investigations into Al-Yamamah contracts, and he replied:
	"The Serious Fraud Office has met with representatives of the US Department of Justice to discuss case related matters."—[ Official Report, 1 March 2007; Vol. 457, c. 1452W.]
	That implies that the British Government are co-operating with the US in what seems to be a preliminary inquiry into whether there has been a breach of US law in that matter. It would be helpful if the Government could confirm that that is indeed the case.
	The third issue relates to the Foreign Affairs Committee. The debate on Al-Yamamah has often taken on a party-political colouration, but what was important about the report published at the weekend was that it was an all-party report. Eight Labour, four Conservative and two Liberal Democrat Members produced a consensus report that had two very important conclusions. The first, in paragraph 42, reads:
	"We conclude that the Government's decision to halt the inquiry into the al Yamamah arms deal may have caused severe damage to the reputation of the United Kingdom in the fight against corruption."
	That was the consensus view. I know that Lord Drayson has since contradicted it, but it was an important acknowledgement that serious damage has been caused.
	That damage is of several kinds, including damage to the Government's reputation and to British business in general. In the past few months, leading institutions in the City—for example, Hermes, and the F&C Asset Management Group—have corresponded with the Prime Minister, expressing concern about the way in which their reputations and those of the City and financial markets have been damaged by this affair. Leading business people—for example, the chairman of Anglo—have commented that the reputation of their companies has been indirectly affected. The reputational damage has gone quite far.
	The issue also affects the ability of the British Government to give leadership in the field of overseas development. An excellent White Paper published in 2006 by the Secretary of State for International Development commented extensively on Britain's role in leading the fight against corruption. That is clearly seriously undermined if the British Government are criticised for their performance in implementation.
	The second conclusion of the Foreign Affairs Committee is worth quoting. It notes:
	"There may also be an argument that it"—
	the decision of the British Government in respect of Al-Yamamah—
	"has weakened the United Kingdom's ability to take firm action against Saudi Arabia in a range of fields, including human rights."
	The Minister will of course give a considered reaction to the report, but he may wish to give some early indication of his views tonight.
	My final comments relate to where we go from here. Over the next year, there will be a phase 2 inquiry by the OECD working group. It will relate, although not primarily, to one of the issues that has concerned the working group in the past—the state of British law. A view has been expressed that the law that was introduced in 2001 to comply with the convention was simply not fit for purpose. I would be interested to know whether the Minister takes that view. Are the Government satisfied with the law as it stands, or do they feel that new legislation is required to meet the requirements of the convention?
	Phase 2 is not concerned so much with legislation as with implementation of the legislation. Several specific issues will be raised, and I raise them in advance tonight to establish the Government's broad reaction. The first is how seriously the Government are taking further investigations through the SFO. I have had helpful parliamentary answers suggesting that inquiries are continuing in respect of six cases. Those involve South Africa's Hawks deal with BAE Systems, Romania's fighter contracts, the Czech Republic, Tanzania air traffic control, Chilean frigates—a matter that relates to the £1 million alleged to have been paid to the late President Pinochet—and Qatar. It would be helpful if the Minister was able to say whether the British Government are receiving full co-operation from each of the different Governments that are affected. Previous attempts to pursue the investigation in relation to Saudi Arabia were frustrated by lack of co-operation from the other Governments. If Britain is to follow through on the inquiries, it is important for us to know whether the Governments involved are co-operating.
	My second set of questions relates specifically to the Department of Trade and Industry. The hon. Member for Liverpool, Walton (Mr. Kilfoyle) first brought into the public domain a description of the system of parallel contracts, a type of working relationship in which BAE Systems—and perhaps other companies as well—is involved. Under that system, an official contract is drawn up and published, but a separate and less official contract operates through a subsidiary company with an exotic name such as Red Diamond. That secondary contract arranges for funds to be paid through the British Virgin Islands, where financial disclosure is not required.
	As has been reported many times, that system has been in operation with many of the contracts that have been the subject of controversy, and various individuals associated with BAE Systems have been involved. For instance, I believe that Lord Powell, an adviser to the group, has been involved in—and also been a beneficiary of—such an arrangement.
	I have two questions for the Minister, in his capacity as a DTI Minister. First, is he satisfied that the arrangement involving a subsidiary company is entirely compatible wit the system of company law and rules that the DTI oversees? At first sight, it seems odd that companies are able to set up subsidiaries that do not appear in their records, although I am sure that the Department has checked whether that is good practice, or even legal.
	Secondly, are the Government satisfied that moneys can flow through the British Virgin Islands, and is that compatible with the Treasury's rules about money laundering? The working group will pursue those questions, but it will be useful to know the Government's broad approach in advance.
	My final point about the future investigation—which may have started already—has to do with the Government's response to criticisms made in the past by the OECD working group in respect of article 5 of the convention. That article specifically excludes commercial considerations when the Government make decisions about whether to proceed with a legal inquiry. The OECD has already expressed concern about the role of the Attorney-General, for the reason that it involves the possible consideration of UK interests that article 5 expressly prohibits in the context of decisions about foreign bribery cases. How such questions are answered will depend on how the working group investigates the decisions about al-Yamamah. It will want to know how the Government separated out legitimate considerations of national security from commercial considerations.
	One matter of some concern is that there have been reports that the key individual who communicated the Saudi Government's concerns was Prince Bandar, the former ambassador to the US. He visited this country on November 8, and I am pursuing through parliamentary questions the matter of which Ministers he met at the time to communicate his Government's concern. Unfortunately, the same individual is one of the three main people alleged to have been beneficiaries of the commercial arrangements, together with his father the Crown Prince and the Minister responsible for the air force.
	Questions will be asked, and I am sure that the Committee will pursue them, about how effectively the Government managed to separate the purely commercial aspects of their judgment from the entirely genuine national security concerns. This matter will keep coming back. I apologise to the House for running through the issues so quickly, because of the time, but I am grateful for this opportunity to raise it.

Ian McCartney: As is normal practice, I thank the hon. Member for Twickenham (Dr. Cable) and congratulate him on securing the debate.
	I want to deal with the general principles relating to our position. I feel strongly that not only the hon. Gentleman but others have, in advance of the debate, sought to give the impression that the Government are soft on the issues. In fact, we are involved in a huge array of activities designed to root out corrupt behaviour and bring to justice those who perpetrate it. I shall deal with the concepts, principles and history of what we are doing and will continue to do.
	The hon. Gentleman put a range of specific questions, of which I have had no notice—not that he is required to give me notice. Some of them were based on fact, but some were based merely on innuendo and supposition. I give the House and the hon. Gentleman this commitment: I will review all his questions and if they are not answered by what I say in the next moments—many will not be—I shall respond as effectively as I can by sending answers not only to him but to you, Mr. Deputy Speaker, and by placing them in the Library for the consideration of any Member who is interested in the issues and has concerns.
	Let us first cast our minds back to where we have come from. A decade ago, negotiation of the OECD convention was not complete: the United Nations convention against corruption was not even a glint in the eyes of its founding fathers; Transparency International was a small non-governmental organisation, developing its now world-renowned anti-corruption tools; and the subject of corruption was still almost taboo at international meetings and in aid agencies. Businesses were almost universally shy of recognising that it existed, despite the fact that in many sectors in many countries, especially oil, gas and mining, defence procurement and construction, business depended on it.
	At the same time, corrupt leaders from Mobutu to Marcos and Abacha to Suharto had shown the breathtaking venality that consigned their people to abject poverty while they enjoyed lives of luxury with impunity—all because the international community was yet to take its potential mission seriously, and the world's financial system did not yet have in place the controls that today we regard as commonplace to limit the opportunities for such grand corruption. The Government have played a major part in moving from that scenario to where we are today in practice.
	The House does not need to take that only from me. As the hon. Gentleman rightly and fairly pointed out, Transparency International's corruption perceptions and bribe payers' indices ranked the UK as the highest and second-placed G7 country, respectively 11th of 160 and 6th of 30. That is many places above the United States and France, which, according to the media reports by which the hon. Gentleman seems to set such store, are our fiercest critics in the OECD. It is not just the Government's view that the UK is doing rather better than many people, including the hon. Gentleman, would have us believe. I shall give the House a few facts to show how distorted and unacceptable that picture is.
	My right hon. Friend the Secretary of State for International Development accounted for much of the work in his progress report to the Prime Minister, published on 12 March. I offer a few examples. First, we continue to push the anti-corruption agenda in international forums, such as the G8, the European Union and the UN, particularly the implementation of the UN convention against corruption, whose provisions on improving international co-operation on asset recovery are particularly important.
	Secondly, we are implementing the third EU money-laundering directive to make it even harder to move criminal money, including looted assets, through our financial system. Thirdly, thanks to funding of £6 million from DFID over three years, in recognition of the impact of the scourge on developing countries, we have strengthened the UK's law enforcement capacity to investigate allegations of foreign bribery and the laundering of corrupt assets by political elites. On the former, the City of London police are already supporting the Serious Fraud Office in five investigations and made arrests in January. On the latter, the UK has restrained £34.6 million of assets acquired through corruption by foreign political elites.
	The Metropolitan police has established a strong operational relationship to bring specific cases to prosecution. The Met's arrest of the former Governor of Bayelsa state had a strong impact in deterring wealthy Nigerians from trying to launder money through London. The Met has also responded to requests from the Nigerian Government relating to a second former state Governor. In one case, £1 million was returned and in the other, property bought in London is about to be sold so that the proceeds can be returned to the people of Nigeria from whom they were stolen.
	Let me provide other examples. Following an investigation by the Ministry of Defence police, an MOD official, Michael Hale, after taking bribes from a Californian company, was convicted earlier this month on nine counts of corruption. For the OECD, that case does not count, since the conviction was of the bribe taker rather than the bribe giver, but I stress that it shows that the legal framework and the requirement for the Attorney-General's consent worked as they should. It also showed the judge's resolve to punish such crimes with a custodial sentence.
	Separately, a UK citizen, Joyce Oyebanjo, was convicted earlier this year for laundering £1.4 million of stolen assets from Nigeria. She was sentenced to three years' imprisonment. The Attorney-General has secured an extra £22 million to fund Serious Fraud Office investigations arising from alleged corruption under the UN oil-for-food programme.
	On top of the hundreds of millions of pounds that the Department for International Development has already spent on improving governance in dozens of countries around the world, we recently launched a new £100 million governance and transparency fund to strengthen the ability of civil society, parliamentarians, trade unions and a free media to hold their Governments to account.
	As well as boosting the UK's own capacity to investigate international corruption allegations, we have taken an important role in the International Association of Anti-Corruption Authorities, set up by the Chinese to improve co-ordination and sharing of best practice among anti-corruption law enforcement authorities. Both the Director of Public Prosecutions for Northern Ireland and the director of the Serious Fraud Office will help to direct the organisation. The UK's leadership on the extractive industries transparency initiative has allowed it to become widely recognised as the international standard for the management of public revenues from oil, gas and mining.
	We were also in at the beginning of the conception of the Kimberley process to boost transparency in the diamond trade and stamp out "conflict" diamonds. That is now so successful that it is estimated that more than 99 per cent. of rough diamonds are certified as conflict-free. We continue to work with partners to address outstanding issues, most recently by representing the EU on a review visit to Ghana in March.
	In partnership with the private sector, the UK is now one of only a handful of countries with independent oversight of our national contact point on the OECD guidelines on multinational enterprises. That is an important step towards boosting the credibility of this important complaints procedure. All of these are good examples of the benefits that all parties derive from co-operation between Governments, business and non-governmental organisations.
	We have been praised by the OECD, particularly for the work that we have done to train front-line officials and raise awareness in the UK business community—both here in the UK and around the world. One of the ways that we have done that is by commissioning a DVD. We are one of few Governments in the world training front-line staff to make them aware of the damage that corruption can cause and what their responsibilities are in helping to find it, bring it to court, stamp it out and bring to justice the people who are perpetrating it in the first place.
	There are many positive stories about how a strong political will and courageous individuals can make a tangible difference. Several other OECD countries have asked us for more details about our activities to help inform their own efforts. That, I must say to the hon. Member for Twickenham, does not show a laggard, self-interested or irresponsible response to the key issues of the day on these matters. His comments therefore bear no resemblance to reality.
	I have spoken about all the things that we are committed to doing to root out corrupt practices—and there are more, which I will set out for the hon. Gentleman in a letter tomorrow. However, I would like to ask him to do one thing for us. Will the Liberal Democrats give back the £2.4 million that they received from Michael Brown, who was jailed for perjury and obtaining a passport by deception so he could go on the run? He is accused of money laundering. I have set out all that we have done, so the hon. Member for Twickenham has a personal responsibility not just to come here and pontificate, but, where corruption arises, to deal with it. I ask him to do just that.
	We are supporting the work of the Nigerian Economic and Financial Crimes Commission to tackle money laundering and corruption. That includes collecting financial forensic evidence in line with international standards and tracking suspicious transactions—a general issue that the hon. Gentleman raised. That has helped to secure 150 convictions and the recovery of about $5 billion since our activities started in 2002. Our work is making a substantial difference.
	Let me leave the hon. Gentleman in no doubt about the UK's commitment to the OECD as an institution. I should say thanks to  The Guardian, despite the inaccuracies and untruths in its front-page article. The article provided me with the opportunity—as he stated—to make it absolutely clear, without any quibble, that the allegations were untrue. They were untrue when they were made and they are untrue now.
	I welcome the opportunity to share and debate policy reform and best practice. The hon. Gentleman raised genuine issues about improving our legislation. I give him a commitment that that is what I want to do, too. I will set out the details—in terms of the questions that it may take some time to answer and the general aspects of what we want to achieve—in a letter to the hon. Gentleman tomorrow.
	We can all improve on our performance on these matters. This is a difficult and complex area, but I want to make it absolutely clear that the Government are completely committed to doing the best by the British people and the international community. We are at the forefront of tackling corruption. In the last decade, we have made great strides. We are not squeamish about the role of the OECD. I am talking not just about our peer review, but about what happens in all international communities, whether we are thinking of the Human Rights Council or the OECD. We are very committed to peer review—and that includes ourselves. Every time that there is a peer review, there is an example of improving practice. We accept that.
	We play an active part in the OECD—with the individuals and the institution. We also fund it and put in the right resources to make sure that we have an effective international legislative framework to expose and root out corruption where it exists and to repatriate the resources that corruption sucks out of states that mostly cannot afford to lose those resources in the first place. That money can then be put into education, health, transport and all the other key things that we take for granted in this country. Sadly, many countries that are victims of corruption lose out significantly in those areas.
	I hope that I have reassured the hon. Gentleman on the general issues. As I said, I will deal with the specifics in correspondence.
	 Question put and agreed to.
	 Adjourned accordingly at twenty-seven minutes past Eleven o'clock.